Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill
Tulip Siddiq ExcerptsWednesday 7th September 2022
(1 year, 8 months ago)
Commons ChamberRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Tulip Siddiq (Hampstead and Kilburn) (Lab)
I thank the Minister and his officials for all the information about the measures in the Bill that they have shared in recent weeks and for how they have co-operated with me.
As the Minister said, the Bill implements the outcomes of the future regulatory framework review and attempts to set out a clear direction of travel for the regulation of the City post Brexit. It is important that the UK is able to take advantage of this opportunity to create a more competitive financial services sector and to strengthen our regulatory standards for financial stability and consumer protection outside the UK. After more than a decade of stagnant growth, averaging just 1.8% a year, and with the current dangers that face our economy, enabling the City to thrive will be fundamental to the delivery of the tax receipts we need to fund public services and support people through the cost of living crisis.
We on the Opposition Benches broadly support the Bill as it stands. In particular, we welcome clauses 1 to 7 and 8 to 23, which empower the UK, the FCA and the PRA to tailor regulation to meet our needs outside the EU. The Labour party recognises that the City is now in a place very different from where it was in 2016. The consensus view across the sector now is that the ship has sailed on regulatory equivalence with Europe, but regulatory divergence with the EU has the potential to produce many opportunities for the sector and the wider economy, such as the reform of Solvency II to unlock capital for investment in the green transition.
EU regulation can often be over-restrictive, particularly in respect of financial technologies, as the Minister will know, and we welcome the fact that the Bill enables regulators to take a more outcomes-based approach to areas such as fintech. However, Europe will always remain an important market for our financial services sector. In 2021, exports of financial services to the EU were worth £20.1 billion—that is 33% of all UK financial services exports.
Since 2018, the value of UK financial services exports to the EU have fallen by 19% in cash terms, and there has been little progress in securing trade deals for our financial services around the world. I have to say to the Minister that the sector is disappointed that the Government have so far failed to finalise a memorandum of understanding on regulatory co-operation, or to negotiate with the EU for the mutual recognition of professional qualifications for our service sectors. I hope that when the Minister sums up he will tell us what impact he believes the Bill will have in securing those important agreements with the EU and boosting financial services exports more generally.
The Minister will know that I like to ask a series of questions when I deal with him, and I am afraid there is more to come. Let me turn to clause 24. We support the principle that there is a role for the FCA and PRA to advance international competitiveness and growth. We on the Opposition Benches are strongly committed to supporting the City to retain its competitiveness on the world stage and to ensuring that the UK remains a global financial centre outside the EU. But it is also right that financial stability and consumer protection remain the priority for regulators. Any compromise on those important objectives would be self-defeating.
Caroline Lucas
I completely accept the hon. Lady’s point about our being a competitive financial centre, but does she agree that there is a real opportunity to be a competitive green financial centre? As that opportunity is time-limited—other countries are moving faster than we are—does she agree that a secondary objective in respect of climate and nature will be essential to ensure that we regulate in a way that allows us to make the most of that potential?
Tulip Siddiq
I thank the hon. Lady for her intervention. I will come on to that issue later in my speech. It felt as though Conservative Members did not agree with her, but I agree with what she said.
Wera Hobhouse (Bath) (LD)
Further to the previous question, does the hon. Lady agree that one does not exclude the other?
Tulip Siddiq
I had to think for a second about what the hon. Lady was referring to, but she is absolutely right. I agree with her on that, and I will address it a bit later in my speech.
The Opposition particularly welcome the inclusion in the new secondary objective of a focus on the medium-term and long-term growth of the UK economy. Financial services are already an important driver of growth in the UK, but much more can be done to support the sector to invest in companies in every sector and every region in the country, to deliver long-term growth and well-paid jobs in the real economy. I understand that clause 26 requires the PRA and FCA to report annually on the new secondary objective, but will the Minister confirm in his closing speech whether that will include being held to account specifically on the advancement of long-term growth in the real economy?
That brings me on to the provisions in clauses 27 to 46, which deal with accountability more broadly. The Bill facilitates an unprecedented transfer of responsibilities from retained EU law to the regulators. We recognise the need for a rethink of how the FCA and PRA are held accountable by democratically elected politicians and Governments. We particularly welcome clause 36, which will formalise and strengthen the role of the Treasury Committee in holding regulators to account. However, as my hon. Friends the Members for Wallasey (Dame Angela Eagle) and for Kingston upon Hull West and Hessle (Emma Hardy) said, we need to be able to scrutinise decisions taken by the Treasury, and I hope the Minister will elaborate on that. Any new powers allowing greater involvement of and policy input from Government in the FCA’s and PRA’s rule making process must be carefully balanced with the need to protect their regulatory independence. We will be scrutinising these provisions closely in the weeks ahead.
The UK’s reputation for regulatory independence is a key driver of our competitiveness on the world stage, as I am sure the Minister will agree. Equally important, however, is ensuring that the City has a clear direction of travel on post-Brexit reform. I was worried about that, because over the summer the now Prime Minister made a series of off-the-cuff policy announcements and people around her were spreading rumours, which left the sector in a state of uncertainty about her Government’s plans for this Bill. The Minister has today confirmed that the intervention powers, or so-called call-in powers, will be included in the Bill through an amendment. I am disappointed that the Government have decided to cause greater uncertainty in the City by introducing a significant change at this stage, and I hope he will reassure me that they will publish the details of these new powers as soon as possible. I would also be grateful if the Minister would confirm in his closing remarks whether the Government have plans to abolish the FCA and PRA. That would seem to undermine many of the provisions in the Bill.
I also wish to discuss the issue of access to cash and banking services, which some Members have spoken about. The Opposition broadly support the Bill, but we are concerned that there are some serious gaps in it as it stands. Of course, we strongly welcome clauses 47 and 48, which will finally, after years and years of Government delay, protect access to cash. The industry, and particularly the major banks, should be applauded for coming together to help protect cash services at the end of last year, in advance of this legislation being put on a statutory footing. But the Bill does nothing to protect essential face-to-face banking services, which the most vulnerable in our society depend on for financial advice and support.
On this Government’s watch almost 6,000 bank branches have closed since 2015, and the “Community Access to Cash Pilots” report found significant overlap between those reliant on cash, estimated at about 10 million people, and those who need in-person banking support. Those without the digital skills to bank online, people in rural areas with poor internet connection and the growing number of people who are unable to afford to pay for data or wi-fi as the cost of living crisis deepens are at risk of being left behind. Banking hubs or other models of community provision, such as banking kiosks, will need to be part of the solution. These are spaces where dedicated staff can provide vital face-to-face support for those who need it, and tackle digital exclusion by teaching people how to bank online.
Siobhain McDonagh (Mitcham and Morden) (Lab)
Does my hon. Friend share my concern that although a great deal is offered by the hubs, they do not deliver? They certainly do not for those of us who live in cities, as people require the bank most days if they are dependent on cash, and they are just expected to get the bus.
Tulip Siddiq
I agree with my hon. Friend, and I have seen examples of that in my constituency, especially the parts where people are from lower socioeconomic backgrounds.
Jim Shannon (Strangford) (DUP)
The hon. Lady is outlining the case on behalf of those who live in rural communities, who comprise about 50% of my constituents. A number of banks have closed in our constituency—I believe there have been 10 or 11. Each of those banks—Danske Bank, Ulster Bank and all the others—has made exorbitant profits. I am not saying that they should not make a profit, because they should, but their profits are so high that they could well keep their branches open to ensure that people who live in a rural area can have access. Does she agree with me on that?
Tulip Siddiq
I agree with the hon. Gentleman’s point, especially as regards constituents in rural areas. I hope the Minister will take on board the comments that are being made.
I was delighted to hear the announcement from the Cash Action Group this week that the sector will be launching additional banking hubs on a voluntary basis, but these services must be protected by legislation. Will the Minister kindly set out in his summing up when the Treasury will be publishing its cash access policy statement, and whether it will ensure that in-person services are protected under the legislation?
It is also disappointing that the Bill fails to address the growing problem of financial fraud. Labour fully supports clause 62, which enhances protection for victims of authorised push payment scams, but the Bill does nothing to strengthen fraud prevention. Under this Government, the amount of money stolen directly from the bank accounts of hard-working people and businesses through scams and frauds has reached an all-time high of £1.3 billion. That would be bad in a normal time, in the best of times, but it is especially bad when we are in the middle of a deepening cost of living crisis. This Government have completely failed to get to grips with modern fraud and scams, such as identify theft and online scams, which have seen people’s lives stolen and their economic stability put at risk.
The former Business Secretary, who is now the Chancellor of our country, was asked about fraud earlier this year. He dismissed it, saying that fraud and scams are not a part of most people’s everyday lives. That is breathtakingly out of touch. Why does he think that? It is shocking. Martin Lewis, the money saving expert, said at the time that
“denigrating the experience that people in this country have with scams, and the lives that have been lost or destroyed because of scams, is an outrage. And he must and needs to apologise if he has any shred of decency in him.”
We still have not received an apology from the Chancellor, but he can put things right by taking immediate action to rectify the amount of fraud and scams that people are facing. I ask the Minister to explain in his closing statement why his Government continue to fail to take fraud seriously and push responsibility solely on to the banks. The Bill ignores the fact that digitally savvy criminals are increasingly exploiting a range of financial institutions, such as payment system operators, electric money institutions and crypto asset firms, to scam the public. In his summing, can he also please explain why the Bill would only provide for the reimbursement of fraud victims who send money using the faster payment system, and why other payment systems have not been included? That seems baffling.
Another area in which I feel the Bill lacks ambition is support for the mutual and co-operative sector. While clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the Bill does little to address the outdated regulatory regime faced by credit unions, building societies and co-operative banks. We have seen numerous building societies threatened with demutualisation in recent years, while the number of mutual credit unions has plummeted by more than 20% since 2016. Unlike the USA and many other European countries, the UK is uniquely lacking in mutually or co-operatively owned regional banks. That lack of diversity in the financial services sector has had devastating consequences for financial inclusion and resilience, with many desperate families forced into the arms of unethical lenders. I have seen that first hand in my constituency, especially in Kilburn.
A clear first step in addressing this issue would be to require the Financial Conduct Authority and the Prudential Regulation Authority to have an explicit remit to report on how they have considered specific business models, including credit unions, building societies and mutual and co-operative regional banks, to ensure they are given parity of esteem with other providers. I would be grateful if the Minister addressed that in his closing remarks—I recognise that I have asked many questions that I want him to answer.
Turning briefly to food speculation, Global Justice Now has brought to my attention concerns that the Government’s proposed reform to the position limits regulations under MiFID II have not been adequately assessed for commodity market speculation risks. I ask the Minister to provide some reassurance that these reforms will not adversely impact commodity prices, such as energy and food prices, in the midst of a cost of living crisis, and to explain what role the regulators will play in monitoring this.
Finally, turning to the points that have come from the Opposition Benches, it is striking how little the Bill has to say about green finance. We of course welcome clause 25, which formalises the responsibilities of the FCA and PRA under the Climate Change Act 2008—introduced, I remind the House, by the last Labour Government—but the Government promised much more radical action. Indeed, we were promised that the UK would become the world’s first net zero financial centre, but instead, we are falling behind global competitors.
A recent report from the financial services think tank New Financial revealed that the UK is a long way behind the EU in both share and penetration of green finance in capital markets. It is possible that the Minister has not read that report; I am happy to send him a copy. If he reads it, he will see that it says in black and white that the UK is behind the EU. It found that green finance penetration in the UK was at half the level of the EU, and roughly where the EU was four years ago. When the Minister closes, if he does not agree with me, will he please explain why nothing in this Bill commits the Government to introduce sustainability disclosure requirements, a green taxonomy plan, or a green finance strategy for the sector? If he does not agree with the report I have quoted, could he tell me whether it is wrong?
I look forward to debating and, hopefully, addressing these issues with the Bill when it is in Committee. Once again, I thank the Minister in advance for his closing remarks, which I am sure will give detailed answers to all the points I have raised today.
The Economic Secretary to the Treasury (Richard Fuller)
With the leave of the House I would like to speak for a second time, and I will start by thanking right hon. and hon. Members for their contributions to the debate. As the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) has just said, I welcome the broad support across the House for the Bill.
As has been clear throughout the debate, I am really a small person standing on the shoulders of the two giants responsible for the Bill—my hon. Friend the Member for Salisbury (John Glen) and my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak). I will seek to address what I can of what has been said in the time available—[Interruption.] Shush. Where I am not able to, I shall write to colleagues where I feel that I can add something meaningful. I also look forward to Committee, where I will be able to address some of the points in more detail.
As I said in opening the debate, this is an important and ambitious Bill that seizes opportunities afforded by EU exit to make important reforms to the regulation of financial services. As my right hon. Friends the Member for Richmond (Yorks) and for South Northamptonshire (Dame Andrea Leadsom) and my hon. Friend the Member for Salisbury said, the resilience of the United Kingdom financial services market as we exit Brexit has been much stronger and greater than the naysayers said. Once again, people who talked down our country have been proved wrong.
There were questions on a number of areas, but I will start with access to cash, which was raised by a several Members. The UK Government remain absolutely committed to protecting consumers and supporting inclusion. The impact of bank branch closures should already be understood, considered and mitigated where possible so that all customers, wherever they live, and especially the most vulnerable, continue to have appropriate access to face-to-face banking services. Meanwhile, innovative, shared bank hubs allow customers of participating banks to withdraw and deposit cash and seek support from a representative of their bank in person. It was pleasing to hear the contribution from my hon. Friend the Member for Cleethorpes (Martin Vickers) regarding the hub at Barton-upon-Humber, and that of my hon. Friend the Member for Mid Derbyshire (Mrs Latham) about Belper. She mentioned the knock-on benefits that banking hubs can have on high streets both in Belper and in other parts of the country. My hon. Friend the Member for Vale of Clwyd (Dr Davies) and the hon. Member for Mitcham and Morden (Siobhain McDonagh) spoke about the importance of financial hubs in their constituencies.
Those are an important part of access to cash, but the Bill also provides the FCA with powers to protect access to cash specifically. Where appropriate, the FCA could exercise the powers in the Bill to prevent a branch closure where in doing so it is seeking to ensure reasonable provision of cash access services. That may be the case, for example, if a closure would result in a significant adverse impact in relation to accessing cash in that area. The Government expect such situations to be exceptional and temporary while alternative arrangements to meet cash needs are put in place, but ultimately that access to cash must and will be protected.
The Bill allows the FCA to determine standards to ensure reasonable access to cash access services. In determining reasonable access, the FCA may take into account factors that it considers appropriate, which may include appropriateness of facilities for vulnerable users, including cost, security availability and accessibility for, for example, disabled people. The FCA is developing its regulatory approach for access to cash and will consult in due course.
Richard Fuller
I was about to come to that. As I said earlier, while I cannot give an assurance on free-to-use ATMs, I do expect us to return to the matter in more detail in Committee. I tried to write down those right hon. and hon. Members who used those four letters—F, R E and E—in describing their wish for access to cash. They included my hon. Friends the Members for Blackpool North and Cleveleys (Paul Maynard), for Cleethorpes and for Mid Derbyshire as well as the hon. Members for Kingston upon Hull West and Hessle (Emma Hardy), for Feltham and Heston (Seema Malhotra), for Richmond Park (Sarah Olney) and for Mitcham and Morden. As I said, we will return to these issues in Committee, particularly given the level of interest in them.
I turn to other matters. The shadow spokesperson, the hon. Member for Hampstead and Kilburn (Tulip Siddiq), asked about the new secondary objectives for growth and competitiveness and whether they were aimed at advancing long-term growth in the real economy. Those secondary growth and competitiveness objectives will enable the PRA and the FCA to make rule changes to advance the long-term growth and competitiveness of the UK economy, including the financial sectors. The new objectives refer to the UK economy as a whole, including in particular the financial services sector.
The hon. Member for Richmond Park, who is in her place, and the hon. Member for Brighton, Pavilion (Caroline Lucas), who I do not think is in her place, talked in an intervention about whether the regulator should have a green objective. Including the net zero target specifically in the regulatory principles ensures that the Government’s commitment to reach net zero will be embedded in regulator considerations. Therefore, it is more appropriately progressed by regulators as a regulated principle, which means they will consider the Government’s target when they advance their own objectives. We heard a lot about what the Government are doing on green finance which did not pay enough regard to the progress the Government have made already on that. Let me just list it. The UK is rated No. 1 globally in the Z/Yen Global Green Finance Index. The UK has had the largest green gilt instruments globally. The UK had the first green savings account issued with the national savings fund. The UK is the first major economy to implement fully the taskforce for nature-related financial disclosures across both financial services and the real economy. The UK is the largest donor to multilateral climate investment funds. That is a record this Government can be proud of. That is a record that this country can be proud of as well.
The hon. Member for Kingston upon Hull West and Hessle asked about having regard to financial inclusion. The Government believe that the FCA’s current and ongoing initiatives around financial inclusion demonstrate that it can already effectively support the Government’s leadership of this agenda through its additional operational objectives and regulatory principles.
The shadow spokesperson asked how seriously Parliament should take the speculated proposals to merge the regulators. There are no plans to merge the PRA and the FCA. Again, she asked about the independence of regulators and how we can ensure the continued independence of our regulators. The legislative framework underpinning financial services regulation in the UK provides for the regulation to be independent of the Government.
My hon. Friend the Member for Wimbledon (Stephen Hammond), who I think may be in his place, asked about whether we could commit to an annual report on the key performance indicators of the regulators. Both regulators, I am pleased to say, will be required to report on their performance against their growth and competitive objectives on an annual basis. This will be similar to the PRA’s current reporting requirements for its secondary competition objective. My hon. Friend also asked about the important issue of cost-benefit analysis panels and what the accountability of the regulators will be. The Government expect that the panel will operate in the same way as other statutory panels, where they appoint external members. Ensuring the right membership of panels is crucial to their success in promoting and challenging a range of expertise.
The Chair of the Treasury Committee, my right hon. Friend the Member for Central Devon (Mel Stride), asked an important question about the Bank of England’s independence. I can tell him and the House that the Chancellor today met the Governor. I refer him and other hon. Members to Her Majesty’s Treasury’s statement on that meeting. The Chancellor affirmed that the UK’s long-standing commitment to the Bank of England’s independence and its monetary policy remit. The Chancellor and the Governor agreed that getting inflation under control quickly is central to tackling cost of living challenges.
My right hon. Friend the Member for Richmond (Yorks) asked whether the European regulations on PRIIPS will be reformed. Yes, the Bill will repeal and retain EU law for PRIIPS. He also asked about ringfencing and whether ringfencing will be reformed. The Treasury welcomes the comprehensive set of recommendations to the Independent Panel of Ring-fencing and is committed to publishing a Government response later this year.
There were many other questions, particularly on MRAs—mutual recognition agreements—crypto-assets and other issues. I will have to write to Members, given the amount of time available. On the important issue of scams and fraud prevention, which was raised by many Members, I acknowledge the seriousness of the issues we face, but I do not accept that the Government and regulators are not taking action to prevent fraud, both in relation to financial services and more widely. The Government are clear that prevention is better than cure and that a multifaceted approach is needed to tackle fraud. The shadow City Minister asked what we were doing beyond financial services. I point to the Online Safety Bill, which the Prime Minister committed to in the House today.
There were many, many issues also raised that I have not had time to refer to today, but that just indicates the wide breadth and importance of the Bill. The Bill capitalises on our freedoms outside the EU by bringing forward an ambitious set of reforms that assert the UK’s global leadership in financial services, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Financial Services and Markets Bill (First sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill (First sitting)
Tulip Siddiq ExcerptsWednesday 19th October 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 19 October 2022 - (19 Oct 2022)
Andrew Griffith
Q
Sheldon Mills: I will be brief, in the interests of time. Clearly, the Bill represents a significant opportunity—almost a once-in-a-generation opportunity—to transform financial services regulation. There are a few components to that. The first is the fact that the regulators will be given the powers to transpose the retained EU law into UK law. That provides an opportunity for us to think in terms of the UK financial services system and what we need to support UK financial services and ensure that we are a leading centre, worldwide, for financial services.
We welcome the other opportunity in the Bill—the secondary competitiveness objective—on the basis that it provides a spur to us to think about growth and competitiveness as we pursue our primary objectives of competition, consumer protection and market integrity.
The final point, which goes to your point about the corpus of rules, is that I think some of the powers, and some of the exhortations in the Bill for us to review our rules, are important. It is important for us always to have an efficient rule book and system so that we do not place as much burden on business as we otherwise would, and so that the system is certain, consistent and effective. There are genuine opportunities in the Bill.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
Q
Sheldon Mills: Of course. It is a matter for Government as to what amendments they put to Parliament, and it is then a matter for Parliament as to what you do with them. You always have to be careful as a regulator not to tell Parliament what to do, but I will put some thoughts forward.
Independence needs to be at the heart of the regulatory system, so I think it will be important, if and when that amendment is put forward, to think about how the independence of the regulators is sustained. I understand from Government pronouncements that there is a commitment to the independence of the regulators, and that the proposed amendment, which I have not seen, is meant to ensure that where a public interest mechanism is needed—where the Government wish to think about the public interest—there is one to bring forward.
I have worked in regimes with public interest tests. I ran the mergers division at the Office of Fair Trading and the Competition and Markets Authority, and my learning from that is that, if put in place, such a test should be used exceptionally and with care, and that there should be specificity about the matters of public interest—in this case, financial services—on which it would be used.
We are working constructively with HMT in relation to this, and we would do so if such a power were introduced. The only point I would make—Vicky may come to this—is that the standing of the UK financial system is also built on its independence and its consistency of regulation, and it is important that we think through that as we design this regime.
Victoria Saporta: I very much agree with what Sheldon said. We have not yet seen the amendment, so we have to reserve judgment on it, but it will depend on the formulation.
A formulation whereby the Government can force or direct us to make or amend rules that we have already made, and that fall squarely within the statutory objectives that Parliament has given us, may be perceived as undermining operational independence and all the benefits that I talked about earlier. That could have adverse implications for our international standing and, ultimately, our competitiveness.
A formulation that is squarely outside our objectives—for matters of national security, for example—and does not have to do with safety and soundness, or the other objectives and “have regards”, could be a different matter if it is tightly done.
Finally, sometimes I have read in the press and in previous ministerial comments that it makes sense in a parliamentary democracy to ask the regulators to take another look. I just want to say that in clause 27 there is a review power that gives the Treasury powers to force us—to direct us—to take another look and, indeed, to appoint a third party to do so.
Peter Grant
Q
Sheldon Mills: Of course we have had discussions with HMT in relation to the proposed amendment. I personally have not seen it.
Andrew Griffith
Q
David Postings: If it is true, it should worry us —absolutely. I think the Bill is a good first step in addressing some of those issues. We have had the Lord Hill review, and its recommendations are contained in the Bill. The changes to the double volume cap and the share trading obligation will help the UK’s competitiveness and our ability to grow that share.
Emma Reynolds: We are in a very competitive environment, and I think the UK is losing out to New York, when it comes to listings. We need to focus on that. We should not be complacent. Obviously, there is very big competition from the Asian international financial centres, too.
Tulip Siddiq
Q
Emma Reynolds: First, let me say that we have discussed this power with Treasury officials, and we have submitted a paper to the Treasury and this Committee about how it could be defined. As one of the regulators said earlier, with greater power—obviously, this Bill and the exit from the EU confer a lot of new powers on the regulators—comes greater accountability.
There is a balance to be struck between enhanced regulatory accountability and maintaining the day-to-day independence of the regulators, which is something that international investors and businesses appreciate, because it leads to a stable regulatory environment. If the intervention power is tightly defined and used as a matter of last resort, you can minimise the risks. We think it could be a very reasonable instrument and power to take, given the circumstances and the transfer of power.
David Postings: The EU regulation was constructed through primary legislation in the main, with the agreement of a number of countries in the EU. That is now being put into the rulebook in the UK, so the regulators have tremendous capability to amend those regulations. It is not unreasonable to have a power that allows Parliament to scrutinise that kind of thing. We have not seen a draft clause, but we have talked to the Treasury and the regulators about this.
The most important thing is that it is used sparingly and drawn tightly. The best overseas example that we could come up with was the Australian example. I believe that it has never been used, but it is there in extremis. It should be something that is very rarely used and not politicised. We need to get the balance between the scrutiny of the regulators and not politicising it. That is a very difficult trick to pull off, but we should be able to do it.
Tulip Siddiq
Q
Emma Reynolds: The first question is very difficult to answer. I think it is probably one for the Government, if you do not mind me saying.
The answer to the second question is that there are occasions where regulation is not designed to meet the expected outcome—there could be a case where the regulator is not aware of national security risks—so there are occasions where such a power could be used. As I said before, it needs to be tightly defined. Defining a trigger would be useful, but equally you do not want to define it so tightly that it could never be leant on or even used. Given the amount of power that the regulators are being given, we think it is important that the broader societal and economic impact of the regulation is something that both Government and Parliament have the power to have a say in, if that regulation is deemed not fit for purpose.
Stephen Hammond
Q
“The Financial Services and Markets Bill should be amended to include a power to require regulators to transparently report metrics”.
I wonder if you could comment on that a little, please.
Secondly, you have mentioned proportionality, and again in your written evidence to us you suggest that there may necessarily need to be more of it when we consider the risk, the nature and the scope of businesses, who they are there for and who their customers are. Does the Bill set the right tone for proportionality, or do you think there is still more we should consider?
Emma Reynolds: To take your first question, we think it is important that the regulators are not marking their own homework with regard to the secondary objective. We welcome what the PRA said earlier and the discussion paper it has put out, but we do think the Treasury could take upon itself a power to demand that the regulators report more frequently and when the Treasury has some concern about whether they are meeting the new secondary objective. We do think the Bill should go further in that regard. We do not want this objective to just be in an Act of Parliament and for it to never really be a reality. The question is, “Does this bite?” That is what a lot of our members are saying. We think there are ways that you could hold the regulators to account on that.
Does the Bill set the right tone on proportionality? At its core, it is an enabling Bill, so the proof will really be in the pudding. We hope so. Hopefully, the secondary objective will mean that the regulators will take that very seriously—that their regulation should be proportionate—so we hope so, but it remains to be seen.
Tulip Siddiq
Q
Chris Hemsley: I think that the short answer to that is yes, but it is a challenge. We are always seeking to recruit and make sure that we have the right balance of skills in the organisation. We have a range of specialists who cover different technologies and payment systems, so it is not something to be complacent about.
The other observation I would make is that some of the risks and issues—and some of the opportunities—presented by things such as cryptopayment and distributed ledger are familiar problems, but with a different technology behind them. We are worried about our consumers’ money. Is it safe? Are arrangements for getting access to these systems fair and open? Are there competition problems? It is really important—the Bill does this—to make sure that that regulatory framework to tackle those familiar problems is also turned on for these new technologies, and that is the balance we need to strike.
Tulip Siddiq
Q
Chris Hemsley: We need to continue working closely with the two other principal regulators that tackle these issues—the FCA and the Bank of England—as we do today. We do that today with other technologies. We want the full framework to be turned on. With the FCA, we for example ensure that individual payment firms protect people’s money. You are absolutely right; in a world where people might not understand what a particular asset is, and its potential to reduce or substantially change in value, there is a really important role for the FCA in ensuring that firms are dealing with their customers properly. There is then a role for us in ensuring that the systems work, and that the rules are open, transparent and protect consumers, system-wide. The Bank of England ensures there is sufficient security and resilience, so that the systems actually work when we need them to, as we increasingly rely on them.
Martin Docherty-Hughes
Q
I am glad to see that there is some regulation in the Bill, but you used terms such as “future-proofing”. With this technology, we bandy around terms such as “innovation” and “future-proofing”. What does that actually mean, in real financial terms? Frankly, it is not the type of language that I, as a legislator, would like to see used in regulation of a market. It is not just that it is unfamiliar; it does not seem like the correct kind of language or descriptives to use when we can have an impact, predominantly on consumers who might use these commodities and assets digitally. What do you mean by “future-proofing”?
Chris Hemsley: That is a very good challenge. I want to ensure that the full regulatory framework that we have in the UK is turned on and applies properly, so that we can manage consumer protection and competition risks. That is what I mean in terms of that definition. That applies particularly to how payment systems regulation works. We have some relatively broad definitions of what can be covered. The Bill helpfully clarifies that those broad definitions of where regulation can apply are sufficiently broad. The way that the regulation works is that it still requires the Treasury to issue a designation—the Minister issuing a designation of a system—and our statutory duties and checks and balances then kick in. It is shorthand. If I try a slightly more precise framework, you need to ensure that the initial definition is sufficiently broad, so that those subsequent decisions on if and how something should be regulated can apply.
Andrew Griffith
Q
Charlotte Clark: It is the United States, Bermuda, and Singapore—Europe as well, but particularly for reinsurance.
Karen Northey: For investment management, I mentioned before that the US is the largest investment management centre. We are seeing growth in other centres, close to home in Europe, but there is also a very significant China and Asia investment management centre. On fund domicile, which is more the back office where the funds are registered, Ireland and Luxembourg are obviously the key places where funds are often established.
Tulip Siddiq
Q
Charlotte Clark: I do not think that there is anything in the Bill specifically around net zero. I understand the debate about whether there should be an additional objective for the regulators around it. Obviously, net zero is incredibly important for the insurance sector. We bear the cost of climate events. The incentive on us to think about and support the transition, particularly financially, is very apparent.
I think our regulators do a pretty good job when it comes to net zero. If you think about the things they are doing, such as the stress test, the establishment of the climate financial risk forum and the work they are doing on disclosure, they are pretty much ahead of most other regulatory organisations on net zero. I guess one of the questions is: what would you want to do differently? This comes back to whether they have an objective. One of the concerns about them having an objective is whether it would be their responsibility to direct investment. Again, that comes back to what the role of the regulators in this is. In some ways, put bluntly, I think it is the Government’s responsibility to deliver net zero. We all have accountability in that, but I would not necessarily say that giving an objective to the regulator should change what they are currently doing, so I would question why you would do it.
Tulip Siddiq
Q
Karen Northey: Again, I would highlight that the UK is a centre for green finance and has done very well in it. It is a big part of what our members do. For risk management, investment managers have to take a long-term view, and that long-term view, by its nature, has to take into account climate change. Additionally, they play a huge role in directing finance towards transition, so there is a dual role for our industry.
In terms of a competitive and growth objective for our regulators, I agree with Charlotte that the regulators are generally doing a very good job. One of the key things in green finance is international standards and compatibility between them. There is a cross-border element to all forms of capital movement and investment, and alignment with international standards, so taking into account what is happening elsewhere is a key part of a regulator’s activity, particularly in green finance.
Craig Tracey
Q
Karen Northey: On your question of whether the secondary objective is enough to change culture, I think an objective is necessary but I do not think it is sufficient—so it is necessary but insufficient. Culture absolutely has to follow. What we do not want is for it to be a check in the box when you are making a new rule for the handbook—“Yes, it will contribute to this.”
There does have to be an overall culture change, but to do that you do need the objective. I think that a lot of the ideas put forward this morning by TheCityUK around, for example, disclosure and transparency reporting on exactly how the objective is being met in each decision, will be key to that. I think we will continue to work with our regulators on that, as we currently do, but we would definitely encourage more transparency and disclosure around how individual measures are meeting that secondary objective.
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Financial Services and Markets Bill (Second sitting)
Tulip Siddiq ExcerptsWednesday 19th October 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 19 October 2022 - (19 Oct 2022)
Andrew Griffith
I thank the deputy governor for his comprehensive comments.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
Q
Sir Jon Cunliffe: I have not seen the proposed amendment. I have only seen the Financial Secretary’s comments to the Treasury Committee and comments from the previous Economic Secretary at the Treasury, so I would need to look to see. I would say that the Bill as drafted gives the regulator primary and secondary objectives to make the difficult decisions that some of the witnesses this morning were complaining about. It requires us to balance different things before we come to a decision, but underlying that is the primary objective of financial stability and the safety of the system.
I do not know how often a call-in power or an intervention power would be used, and I do not know what frameworks would be around it. Of course, one cannot always assume that the intention when introduced is actually what happens five or 10 years down the line with different Governments. It is something that gives Ministers the ability to take a second judgment on the judgment the regulator has made in line with everything in the “have regards”—the secondary objective—so it would, yes, affect the perception of the independence of the regulatory part of the Bank of England.
Tulip Siddiq
Q
“Anything that would weaken the independence of regulators would undermine the aims of the reforms”
implemented by the Bill. Do you think he was referring to the proposed intervention powers?
Sir Jon Cunliffe: There has been a lot of discussion. There was discussion in the consultation about a number of aspects that might affect either the independence or balance of the regulators. I know there was a discussion on the competitiveness objective, and we think it has been drafted in a very sensible way. That came up in the consultation. At that point there was also talk of an intervention power, so it would apply to that as well, I guess.
Craig Tracey (North Warwickshire) (Con)
Q
Sir Jon Cunliffe: I should say at the outset that our responsibility is the prudential regulation. The FCA deals with a different market. On the prudential and infrastructure side that I deal with, there is not a huge amount of commerce with Singapore. Would I accept that the competitiveness of our financial sector relative to Singapore’s in the areas that I deal with has been damaged? No, I do not think I would. I do not know of any examples. I think the firms that you quoted were in the FCA area. The competitiveness of the financial system depends on many things. It depends on our openness to migration. One thing you hear most from international banks and the like is the overriding importance of getting the best talent. That is a huge advantage for the UK, which has been called into a little doubt recently, but I think is now being re-established.
The taxation regime plays a role, and then there are lots of things about the attractiveness of the location for people to live in. On making a comparison between two financial centres on how many firms have started one and how many firms have started another, and assuming that all of that is to do with the way regulation is designed, I would be careful about making comparisons on that basis. There is a lot more in it.
I will bring it back to my area if it helps. When I look at the technological changes that are coming, and when I look at the European Union, which is where we were, and look at areas where I know we have not had the flexibility to design the regulation that we would have wanted to design—there are pros and cons to being in the European Union, and we can argue about those—you have to be within a single market where the rules are pretty much set for everybody. On the rulebook as we have it now and instances where people have said, “We don’t like that part of the rulebook. We will set up somewhere else”, I do not have any instances where that has happened, but it probably has.
As these powers, which are now coming back to the UK and I think rightly coming into the regulator’s rules, are exercised, where does the regulator put the balance? What is the scrutiny of the regulator? Is there accountability? In the end, those decisions, if I can encapsulate it, lie in the way the Bill has been set up with the primary and secondary “have regards”, and those arrangements should ensure that we are competitive in future.
Andrew Griffith
Between putting in place—I am not making a point; I am just trying to open this up for the Committee—good, valuable seatbelts and protections versus over-protecting consumers to the degree that large numbers of participants exit the market and then consumers are left with door-to-door, unregulated providers of credit.
Paddy Greene: Affordable credit is absolutely essential for consumers, but we need to make sure that, first of all, access to credit is regulated. We do have a particular form of credit that people are accessing now with buy now, pay later, which is not regulated at all, but consumers presume that it is. There are some basic protections we need to build in. One is to ensure that the parts of credit that people access are regulated themselves and that it is clear that consumers understand what is regulated and what is not. Then there is some basic information, such as key terms and conditions.
I am aware that some of the details in the Consumer Credit Act 1974, which is exceptionally old, are onerous, and there will be a chance to review that—I think later this year. It is about making sure we have efficient information presented to consumers. There is a balance there, but there is key information that we must provide them and there are key protections that must be baked in.
Tulip Siddiq
Q
Paddy Greene: Yes, it is a cause for concern. When we are talking about consumers, for the objective in the Bill on access to cash to be met, consumers must have free access to cash. Without that, I think the objective may be undermined. It is the case that we have paid-for provision—it is in theory available now—but it does not serve the market. We must ensure there is free access to cash. A huge raft of people rely on cash. It is massive numbers, but it is also the case that they tend to be vulnerable and on lower incomes. If it is the case that it is not free, when somebody goes to take out £10, they are paying £2 to get it. That is just an example, but that doesn’t seem right. The fact is, we need to have a minimum, base level of free access to cash. We are delighted that the provisions have been brought forward and that we will have this in legislation, but for it to work effectively, it has to be free access.
Peter Grant (Glenrothes) (SNP)
Q
Paddy Greene: I cannot speak for small and medium-sized enterprises—I am here to represent consumers—but fundamentally I do think that the regulatory framework in this country provides confidence. I think it has been robust, relatively speaking, over the years. If we compare it to some other international sectors, I think it is a framework that can provide people with confidence. We would be remiss to weaken that in any way.
Tulip Siddiq
Q
Paddy Greene: Yes. Similar to the comments that were made before, it is right to start with faster payments. We need to move to a model where we are absolutely confident—I heard the tail end of the previous evidence about different payment mechanisms and those that are emerging. We must have consumer protection baked in. We want consumers to have confidence and we know people are going to use such systems but, as we have said previously, they do not necessarily understand what is backed and the type of payment mechanism that is used.
In terms of what we want to see next, we are delighted with faster payments, but £79 million is already lost on CHAPS, on-us items and international payments. First, we need to make sure that the PSR and the Bank are talking properly about CHAPS, because when we are talking about CHAPS, we are talking about house purchases. For the people who are scammed during such a payment, there is a huge detriment, not financially but emotionally, and we know that fraudsters will adapt.
Our next steps, after we have got faster payments, are CHAPS and on-us, and we need to look at international payments. We need to make sure the regulator is looking at all the other designated payments and those that will come down the line, because we are seeing innovation, in order to make sure that the appropriate consumer protections are built in from the very start.
The Chair
If there are no further questions from Members, I thank the witness for his evidence and we will move on to the next panel.
Paddy Greene: Thank you very much.
Examination of Witnesses
Natalie Ceeney and Martin Coppack gave evidence.
Andrew Griffith
Thank you. I think you may get an invitation to some parts of the country.
Tulip Siddiq
Q
Natalie Ceeney: That is a very good question, and I am conscious that every time this issue is debated in Parliament or, frankly, every time I meet a community, the debate goes very quickly from cash to banking. It all merges. The reason is we are talking about the same population. If somebody needs face-to-face support with their money, which might be about getting money out, paying money in, a standing order or the fact that a payment they expected has not arrived, it is the same demographic group. We have recognised that in the voluntary scheme. When we set up a banking hub, it does not just have a counter where you deposit cash and get cash. There is also a private space where the banks provide a community banker to do basic banking services. As far as the legislation is concerned, the voluntary scheme we set up will cover that need on a voluntary basis.
There is one challenge that you might want to include in the legislation. I am going to stay neutral because of my members. The consumer groups and small business associations would say it should be included and the banks would say it should not, but if you do want to go there, defining what you mean by face-to-face banking services and particularly essential services is really important. I do not think anyone would expect you to offer wealth management or buy-to-let mortgage advice on every high street, but helping someone when they are stuck because a payment has not arrived or they have got locked out of their account feels different. Keeping that definition tight is important.
There is also a question about whether the FCA has the powers that it needs already. Those are the factors I would consider.
Tulip Siddiq
Q
Martin Coppack: Absolutely not. I have worked in this sector for 20 years and we have the biggest opportunity right now to make a systemic change to how people who are excluded are addressed by both the regulator and the Government, and we need to take it. Recently I provided evidence to the Treasury Committee, which supported our call for a “must have regard to financial inclusion” for the FCA—importantly, alongside a requirement to publish once a year the state of financial inclusion, what it can do, what it cannot do, and who else can act. That is so important. If I could just give a little more context about why that is so important, I would appreciate it.
Thinking about where we are now, Governments of all different colours over the years have asked people to take responsibility for their own financial affairs—be a good citizen and look to the market, whether that is saving for a rainy day, saving for retirement, or protection products for insurance—but what happens if the market does not want you? What if the market says, “You are a higher risk and more costly to serve, so we are either going to make our products more expensive for you or we will just exclude you.”? I think everybody can recognise that situation.
With competition-driven markets, we can all agree that firms will naturally design products that are profitable. That is okay if it is not an essential service, but if it involves basic financial products and services that everybody needs, some intervention needs to happen. Over the last 20 years or so, we have been asking amoral markets to make moral decisions about who gets what product at what price and who gets excluded. The biggest issues in the financial exclusion area that are not touched by the FCA’s consumer duty coming out or by its consumer vulnerability guidance are those that lurk around income when people cannot afford a product.
I will give one example to bring this to life. It is on insurance—we have talked about this before, Craig. Increasingly, insurers are becoming ever so good at finding individualised risk per person. Technology is great for that. As a rule of thumb, the mark-up works really well if you are healthy and wealthy. If you are not wealthy and healthy, you are a higher risk, and increasingly you are asked to pay more for your insurance product. We know, for example, that people in poverty pay about £300 more a year for their insurance because of their postcode, and they pay another £150 a year on top if they cannot pay up front and have to pay monthly. Those issues go across insurance. I and many of my colleagues in different organisations spend all our time going to the Treasury and saying, “This is an issue.” The Treasury says, “We have not got the data. Go to the FCA.” We go to the FCA and it says, “The pricing of risk is social policy. It is not for us. Go back to the Treasury.”
Then you go to the Competition and Markets Authority, then the Equality and Human Rights Commission. Everybody points back to the FCA as the only body, often by law, that can get access to this information, but it refuses to because it is not a priority and not within its scope. So we are simply saying there should be a “must have regard to financial inclusion” with a requirement to publish—not to do social policy, but to allow the consumer market organisations to have a conversation about these issues that have been going on for decades. As an ex-teacher, I have a handout, which explains it in one slide.
Dr James Davies (Vale of Clwyd) (Con)
Q
Natalie Ceeney: That is a really important question. When we look at some other countries, that has been the real crisis point. In Sweden, for example, the crisis point hit when shops stopped taking cash. If you are dependent on cash, there is no point having it if you cannot spend it.
I have spoken to literally hundreds of small businesses. The main reason that they do not take cash is not hygiene or anything like it; it is the ability to bank cash. If you go back three or four years, a small retailer used to shut up for 10 minutes at lunch time, pop over the road, deposit their cash in the bank and pop back. What they might now have to do, with the local bank 20 miles away and open between 10 and 3, is to shut up for an hour in the peak of the day, drive, park, queue and drive back. No wonder many shops say, “You know what? It is only 20% of my customers. I will go cashless.”
That is why in this legislation, deposit facilities are just as important as cash access. It is an area where the industry is behind. You can have deposit-taking ATMs—they are just as well tested as ATMs that issue cash. We do not yet have any mechanism in the UK for third parties to use them. It is something that I am working with the industry to solve, but this legislation is utterly critical. If small businesses can deposit cash easily, most will keep taking it.
Andrew Griffith
Q
William Wright: Thank you for the question and for the invitation to join you. Overall, the Bill gets just about the right balance between, on the one hand, the opportunity to reframe, tailor and recalibrate the framework for UK banking and finance, and on the other, to address the post-Brexit imperative to do so.
Inevitably, now that the UK has left the EU, we have to rework the financial architecture around regulation—the processes—now that it no longer goes through the European Parliament, the European Commission, the ECON committee and so on. The FCA, PRA and the supervisory architecture need to change to reflect that. I would add that the Bill draws the right balance, broadly speaking, in terms of not going too far, not trying to intervene too much in the specific legislative briefs in different sectors, and focusing much more on setting the framework.
On the second part of your question, on competitors, it is important to divide—for want of a better word—the City into two; it is a tale of two Cities. There is no competitor to the UK domestic side of the City, which is all about providing the right support and finance for UK companies and investors, and oiling the wheels of the UK economy. On the international side, of course, the competitive environment has changed quite radically over the past few years. We are now competing simultaneously with the US, with rapidly growing markets in Asia, and with renewed competition—some of it motivated perhaps more from a regulatory perspective than a competitive perspective—from European financial centres.
Tulip Siddiq
Q
William Wright: Part of that question relies on how you measure it, so I can only speak to how we at New Financial have measured it. We recently looked at and reviewed green finance activity—more specifically, green capital markets activity—in the UK and the EU. We found that, on two key measures, the UK is actually significantly behind the EU, which suggests that there is a disconnect between the widely accepted and widely stated position that the UK is already a global leader in green finance, and the widely received ambition to become the leading international green finance centre.
We looked at it in two ways. First, when you look at the UK’s market share of European activity in green finance, across equity bond and loan markets, it is about 14% of all EU plus UK activity. That is significantly lower—significantly lower—than the UK’s share of other capital markets and financial services activity. On a narrow definition of capital markets, the UK has a share of about 20% or 22% of EU 28 activity; on a broader definition of banking and finance, it has a share of just over 30%. Strictly in green finance, the UK has a share of half to two thirds of where you would expect it to be.
We also looked at the penetration: what percentage of equity capital raising—loan market and bond market capital raising—is green, in both the UK and the EU? In every single sector that we looked at, the UK lags behind in terms of green capital raising as a proportion of total capital raising. To give an indication of scale, last year roughly 20% of all capital markets activity in the EU was green; in the UK it was 9%.
There is a disconnect. I think there is an opportunity for the UK to catch up, but there is, shall we say, quite a lot of catching up to be done.
Tulip Siddiq
Q
William Wright: There is certainly a role for legislation; I am not sure that the right place for that role is this Bill in particular. It is important to step back and look at the huge amount of work that has already been done and is being done in and around green finance from a legislative perspective. The latest addition to that is the net zero review, and the green finance strategy is expected from BEIS early next year, maybe. There are sustainability disclosure requirements, the UK green taxonomy and the transition plan taskforce. That work, which is coming down the pipeline towards us, could contain a lot of the legislative impetus for the UK to close the gap.
More importantly, I think the industry is already beginning to fill the gap. Where the UK has a real opportunity in green finance in future is not so much in the level of capital raising by UK companies, but in the fact that it is in pole position to benefit from its existing expertise in markets such as risk management, derivatives and trading, as we see the emergence of a more sophisticated carbon market of green derivatives and green risk management, and in playing to its existing strengths, many of which have not been harmed or damaged in any significant way by Brexit.
Peter Grant
Q
William Wright: On the substance of that question, I will have to put my hands up and say it is not an area that we have done a huge amount of work on, although we have recently hosted some events on that theme—for example with Edward Lucas, talking about Russia, Ukraine and links back to the City.
One point I will make is that back in 2007, in a previous life as a financial journalist, I was at the official launch of NYSE Euronext—this was the merger of the New York stock exchange and Euronext, the European-based stock exchange. The founding chief executive, John Thain, who was then chief executive officer of NYSE, said he thought that London would come to regret its campaign in the previous five or six years to attract Russian companies to list on the London stock exchange. If we look back on those comments with the benefit of 15 years of hindsight, he was probably correct.
Andrew Griffith
Q
I would like to ask questions in both directions, if I may. First, does this legislation go far enough to meet your objectives? When I was in front of the Treasury Committee a week ago, I was challenged on the fact that it might give a greater ability to sell a broader range of products. That question came specifically in the context of co-operatives and credit unions. Do you have the necessary expertise and the regulatory rulebook to do that without prejudicing consumers? Sorry, there is a lot there, but hopefully that gives you something to open up with, and we will then hand the questioning to colleagues.
Robin Fieth: Shall I go first? We will try not to talk over each other. Thank you very much for the question, Minister, and thank you for inviting us this afternoon. From the very start we have been a strong supporter of the financial services framework review, and particularly of adherence to the original FSMA principles of setting a framework in legislation and delegating the vast majority of the detailed work to regulators.
On the first part of your question, the Bill largely achieves that objective. We can always ask for more. The areas in the framework side where we may be looking for further advancement are around, for example, the terms of reference or the operation of the Financial Ombudsman Service, as the third part of the regulatory framework. Within that, we have been very strong supporters of the PRA’s “strong and simple” initiative, which is a manifest example of how we move away from the single banking rulebook—the EU body of legislation —in a way that fosters real diversity in financial services and allows us to have a far more proportionate approach to the smaller, simpler, UK-based domestic organisations, like building societies and smaller banks.
On the third part of your question on enabling services, I would observe that the UK’s traditional approach to credit union legislation has been very much on a permissive basis: credit unions are permitted by legislation and regulation to do specific things and specifically not to do anything else. Perhaps the question that the Committee might like to consider more is the extent to which we can empower credit unions better to achieve their service to society and the communities that they are there to service, recognising that there is a regulator to make sure they do not stray too far. Those are my introductory comments.
Robert Kelly: Thank you for the opportunity to contribute today. I echo Robin’s comments in the round, in terms of the general objectives of the Bill. I welcome the opportunity to see, in a post-Brexit world for the United Kingdom, that there is a movement towards regulation and a legislative framework that is proportionate and delivers excellent consumer outcomes. That is certainly something we would echo every day of the week, so it is to be welcomed.
In terms of whether the legislation goes far enough, to echo Robin’s comments again, we have engaged on additional items with HM Treasury officials and regulators in recent times. We respect the fact that we are on a journey and that we have to ensure that a proportionality clause is applied. To go back to the Minister’s comment about whether we have all the expertise and whether the Bill goes far enough, I think those two things go hand in hand. We need to make sure that we continue to showcase the ability of the credit union sector to be a genuine competitor within financial services, that our mutuality and co-operative values shine through, and that we deliver excellent consumer member outcomes.
There are a couple of particular items that we referenced in recent conversations. We have to remember that the legislative reform agenda for the Credit Unions Act 1979 has been going on for a long time. We respect the fact that this is the most significant change since the Act itself in 1979. We are on an innovation journey and we firmly respect the fact that we need to continue to engage with all stakeholders, so we are delighted to see the possibility of additional new products and services being available to the credit unions that want to take advantage of the opportunity to provide them. Hopefully, credit unions can garner a wider share of financial wallets across households throughout the country and make sure that we serve more than the 2 million people we currently serve—that that number continues to increase.
There are a couple of examples that we have talked about. We believe there is a need for a future conversation around the common bond field of membership reform—something we have flagged to HMT already—and also around the possibility of innovation for credit union service organisations. That model is so prominent in and brings many, many advantages to the North American credit union system.
Lastly, in terms of the question about expertise, on the basis that we have had a long-standing conversation around legislative reform, we have been proactive in the background to make sure that we talk to our member credit unions, in conjunction with the BSA and other trade bodies and interested parties, to make sure we have the relevant conversation behind the scenes. We are preparing the ground for credit unions to understand that with the opportunity for new products and services come additional requirements around good consumer outcomes, compliance requirements and in-house training and development. That is something we have been doing in tandem with the legislative reform agenda.
I am firmly confident that we will be able to hit the ground running quickly as and when the legislation goes through both Houses, and that we have the ability then to expand our product and service range and make sure we can serve many more people with ethical finance across the UK.
Tulip Siddiq
Q
Robin Fieth: The first thing is to look at the tradition—the tradition of the UK has been that our regional mutual financial institutions have either been insurers or building societies, traditionally, or, in the last 30 or 40 years, credit unions—compared with the United States or large parts of Europe, where there is a very long tradition of mutually-owned community banks, co-operative banks, lifelines and so forth. Our tradition is very different. Apart from the Co-operative bank, we have never had a large, mutual, fully general-purpose bank. Nationwide is a full retail bank, but it does not do business lending, for example. We have never had that tradition.
As some of you will know, there are a number of small community banks in the mobilisation phase or coming to mobilisation phase. On the second part of your question, the Bank of England’s new banks team has been very good at helping challenger banks to get through the process and start up, and we have seen so many start up. I am not sure that they have the same experience and expertise in respect of what the mutual model looks like and why it is different. If you talk to any challenger bank, they will say it was much more difficult to get through mobilisation than it should be. If you talk to the community banks, they say it is very difficult to get through mobilisation. There are at least three that we are working with on the side, if you like, that are going through that process.
The real challenge, where perhaps there is a role for Government, is in creating the forms of capital that mutual start-ups can follow, because they cannot be venture-capital backed, so you need some form of mutual capital. We have suggested to both the main parties, for example, that whichever version of the British Business Bank you want, it could have a mandate for part of its capital being mutual capital.
Robert Kelly: Robin has covered the vast majority of the salient points, and we would agree with his comments. In terms of taking it maybe a step further or down in respect of the community banking model, as Robin mentioned there is a development agenda in a few areas of the country. There is certainly space for innovation and competition in SME lending and around transactional activity and transactional accounts and making sure there is something different from a competition perspective —maybe where the bigger banks are not necessarily in those spaces or where there is perhaps an opportunity for some more partnership and co-operation. We have talked to some of the community banking models about what space they and the credit union sector could co-exist in. We acknowledge that credit unions are already able to do corporate lending and SME lending, and some have done so. I think around 20 or 21 credit unions across the country have taken advantage of that. The ongoing PRA consultation on the future supervision and regulation of the credit union sector has some reference to that, in terms of additional checks and balances.
We recognise that there is opportunity for the credit union sector to do more. A big part of the legislative reform package that will ultimately impact credit unions can be described as an enabling factor that allows product and service innovation and development. Alongside the community banking and mutual banking model, the development that we have seen, and all the background that Robin has already mentioned, it should be made clear that we in the credit union sector believe that we can also fill some of that space. If the overall objective is around competitiveness and enabling competition, we should be ready to act, and to respond to the needs of communities and small businesses across the country.
Peter Grant
Q
Robin Fieth: Whether the term is “corporate takeover” or “demutualisation”, which was very much encouraged by the Government of the day, is a moot point, but you are absolutely right: there is or was a very proud trustee savings bank tradition, and of course it started in the lowlands—well, the borders—of Scotland. Sadly, the last trustee savings bank went into run-off within the last five or six years. That was the Airdrie Savings Bank. It is a tradition that we no longer have. Again, those institutions were not a full service of the kind that the shadow Economic Secretary was talking about. They were not a full service model. They were very much a savings and loans model, largely for retail purposes. That is the tradition we had, yes, but it is now sadly part of our economic history.
Sally-Ann Hart
Q
Mike Haley: Yes. One of the issues with a contingent reimbursement model in any compensation scheme is that it is not a fraud prevention initiative in itself; it really just says who suffers the risk of the fraud. It passes the individual loss on to the banks. The emphasis is on a large amount that you could get away with without thinking that you have taken it out of an individual’s pockets; a faceless bank will pay up to £1 million. Any limit of that size reduces any moral questions a fraudster might have about who they are stealing money from.
Tulip Siddiq
Q
Mike Haley: There are three interconnected reasons why scams have reached such frightening proportions. First, the reach of social media and online platforms means that scammers and fraudsters can reach millions of people—marks and vulnerable people—much more effectively.
Secondly, we have seen organised crime turn its hand to fraud because it is a low-risk, high-return crime. Their skills have grown in something called social engineering, which is how they to persuade someone that they are calling from the bank or from the police by impersonating others. They have become very skilled in that.
Thirdly, faster and instant payments mean that once a fraud has been successful, and you mandate a payment through your bank account, it is very hard for banks to tell that that is a fraudulent transaction, because it has been mandated by the customer. Then, there is a network of money mule accounts, which are either accounts that have been set up for those proceeds to go through, or accounts belonging to people who have been duped into allowing their accounts to be used for that money to go through. Instant payments mean that that is untraceable very quickly. I remember investigating a mass fraud—[Interruption.]
Tulip Siddiq
Q
The other thing I wanted to ask about is investment in the UK fintech industry, which was down to £9.6 billion in the first six months of this year, which is three times less than exactly the same period last year. Do you want to comment on the reason for that decline? What should we be doing as politicians to try and help with that?
Adam Jackson: Taking your first question, it is worth looking at the EU MiCA regulation and possibly the approach of a territory such as Singapore. It links a bit to the investment. We did some analysis of investment in just crypto alone, looking at that as a vertical within fintech, and again, the UK has always been the second location for crypto investment in the world, after the US, until the first half of this year, when we fell behind to Singapore. That might be a blip, but when you then look at regulatory mapping, you will see that Singapore possibly has the most forward regulatory system, particularly for stablecoin. The EU has a very comprehensive approach, but is has not come into force yet. Singapore has an established system, so I think that shows that if you get it right and have a proportionate regime, you attract the industry and the investment.
Is the EU approach right? There are strong arguments to say that it is possibly too comprehensive, and we come back to the notion that trying to find something that works for all 27 does not fit our circumstances. The UK is right to take a more iterative approach. We obviously have a common law approach as well, which means there are certain things we can do through case law. It is absolutely right that we are focusing on stablecoin and that is where some of the biggest volatility in the market was this year. The Bill addresses that, which will be really important in providing confidence for consumers and, critically, for investors in technology firms in that space.
The EU rule applies to not just stablecoin but cryptocurrencies more generally and exchanges, so should we also have a regulatory regime for other cryptoassets? I think the answer is yes. The question is how it fits within the Bill. The Government have said that they will introduce proposals for wider regulation of other cryptoassets. We expect something at some point, possibly soon.
That begs the question whether the Bill already enables the introduction of regulations. We probably need to ask Treasury counsel about the definition of a digital settlement asset. The Bill allows for the definition to be changed. Do the rules enable it to cover other cryptoassets? If it does, the powers are there to enable regulators to introduce systems subject to the proposals. If not, will we have to wait another 20 years before regulators are given the powers to regulate cryptoassets?
On cryptoassets, the important things that our members, including exchanges and cryptoasset firms, emphasise are an authorisations regime, a set of rules for initial coin offering—essentially, clear guidance on what information should be provided to consumers about individual assets—and custody. The Bill provides for applying rules on custody for stablecoin. If we do not have a parallel system, we will start to see some question marks over why those custody rules do not apply to cryptoassets as well.
On investment, there are different ways of looking at the figures from the first half of this year. Some investment, particularly VC, has really held up, but we know that globally we can expect a fall in investment, and we are just starting to see that trickle through. It is therefore a question of how the UK holds up against other countries. We might even see more mergers and acquisitions. At the moment, the pound makes the UK a nice place to come to buy fintech firms, so there may be a bit of difference there. It comes back to maintaining that competitiveness. Our members tell us that the most important thing is to get the Bill through. It provides important powers. If we can strengthen it in some of the areas that I mentioned to the Minister, that is also critical.
The other thing that I would flag is that there are two other pieces of legislation that are either before the House or slightly in limbo. They are also important for the competitiveness of fintech. One is the Data Protection and Digital Information Bill, introducing digital ID and open data, which will really transform the open banking we have into open finance. Australia already has that, so there is a risk of us falling behind. That Bill is also really important.
We have heard a lot about fraud. The provisions in the Online Safety Bill around making the places where frauds are advertised—the social media platforms and search engines—responsible for fraud, as well as requiring banks to reimburse, are critical. That is starting to be a factor in investment decisions. Whatever happens to that Bill, ensuring that those provisions are introduced as soon as possible is key.
Martin Docherty-Hughes
Q
Adam Jackson: I was not suggesting that we should necessarily compare the exact regulatory regime—the economy is a very different size—but I would take the wider point that a territory that has been seen to introduce some regulatory rules, as opposed to having none, is seeing increased investment.
The other place to look is the US. I was in Washington last month talking to policymakers, and the area where there is most likely to be a bipartisan Bill next year is regulating stablecoin. In terms of our international competitiveness, others are moving, and the Bill enables the UK to keep up.
Tulip Siddiq
Q
Martin Taylor: Let me speak plainly, because it is late in the afternoon. I think this is a shockingly bad idea. I think it will certainly undermine regulatory independence —without any doubt—simply because regulators who are subject to the whim of Treasury officials or Ministers are not independent. It is a major erosion of the institutional framework. One could even say it is a corruption of the framework. For me, the institutional framework is hard-won and very precious. I can only suppose that those proposing the powers either do not understand it or do not care about it.
Stephen Hammond
Q
Martin Taylor: The wording that I have seen is of course not final, but what I find strange is that it suggests the regulators are not acting in the public interest. If they have to be overruled in the public interest, clearly you think they are acting in some other interest. For me, the regulators are the public interest made flesh.
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Tulip Siddiq ExcerptsTuesday 25th October 2022
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Shaun Bailey
I thank the hon. Lady again for the work that she has done.
I will round up my comments by saying that I think it is right that in clause 1 the Minister has the ability to do what he needs to do, but I do ask him to consider what Members have said about the safeguards to ensure that there is the right framework, particularly around drafting amendments and suchlike, so that we get this right. The Bill is needed and the Government are absolutely right to do what they are doing. As with any piece of legislation, it is about ensuring that we iron out the creases. I hope the Minister will give us those assurances today.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve with you in the Chair, Dame Maria, especially after our time together on the Women and Equalities Committee.
The Opposition recognise that enabling the City to the thrive will be fundamental to support the country and to help people through the cost of living crisis. We need a regulatory framework that allows our country to take advantage of opportunities outside the EU, whether by unlocking capital in the insurance sector for investment in green infrastructure or supporting the vibrant UK fintech sector to thrive.
The Minister knows that the Opposition are broadly supportive of the Bill. We welcome clause 1, which will empower the UK to tailor regulation to meet our needs outside the EU, but my questions are similar to those posed by my hon. Friend the Member for Wallasey. What reassurance can the Minister provide that clause 1 will not result in the Government diverging for divergence’s sake and, in the process, unnecessarily revoking rules that might boost the competitiveness of the City or protect consumers from harm? As my hon. Friend said, we want a bit more detail on clause 1.
I also have a few technical questions. Will the Minister confirm whether his Government still plan to revoke all retained EU law by the end of 2023? What assessment has he made of the impact of that date on UK financial services? The date seems a bit arbitrary and we want to know how much thought went into coming up with it. Does the Minister think there is a risk of creating uncertainty and extra costs for the sector by forcing financial services businesses to unnecessarily adapt their business models by the end of next year? A bit of information would help us gain clarity on the clause.
The Financial Secretary to the Treasury (Andrew Griffith)
It is a pleasure to serve under your chairmanship, Dame Maria. The Bill is central to delivering the Government’s vision for the future of the financial services sector. The hon. Member for Hampstead and Kilburn talked about some of the great opportunities that it unlocks. It seizes the opportunities of EU exit, although it is not exclusively about that. It tailors financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre and to deliver better outcomes for consumers.
Clause 1 revokes retained EU law on financial services. That clears the way to regulate financial services in a way that works for the UK, building on the model established by the Financial Services and Markets Act 2000. In response to hon. Members who asked how it will operate in practice, the settled position for some time has been that the FSMA model delegates the setting of regulatory standards to operationally independent financial services regulators, within the framework that Parliament sets. That is an internationally respected approach that historically has had support from all sides of the House, and I hope that continues.
As a result of our membership of the EU, the UK has been left with a patchwork—the hon. Member for Wallasey talked about her assessing role as that corpus of law was brought into the UK.
Andrew Griffith
I will try one more time, Dame Maria, but I want to emphasise that the approach that the Government envisage being taken is exactly the approach embedded in FSMA 2000. We should not be debating these points ab initio simply by virtue of the work that the Bill does in importing the EU rulebook into UK law. The Treasury Committee, of which the hon. Lady is a member, does valuable oversight work and spends a disproportionate amount of time interviewing the regulators. All the regulatory rules are required by statute to have a period of consultation.
We are straying off the clause, but the role of the Treasury Committee and its Sub-Committee is codified in the Bill to enhance the level of scrutiny. There is a Government proposal—it would be interesting to hear the views of the official Opposition on this—for a public interest intervention power, which would cover precisely the sorts of issues that the hon. Lady’s constituents may be concerned about relating to regulations. I say again that there is no substantive change to the way Parliament scrutinises the independence of financial services regulation, and I hope that is something on which we can all agree on both sides of the House.
In the interest of time, I turn to amendment 44, which would, as the hon. Member for Glenrothes said, mean that retained EU law relating to financial services could not be repealed, other than where it is prejudicial to the interests of consumers, unless replacement legislation is already in place. It is not the Government’s desire to sweep away retained EU law in financial services without ensuring that it is adequately replaced in UK law. I can assure the Committee that there is no arbitrary sunset—
Tulip Siddiq
I watched every minute of the Minister’s appearance before the Treasury Committee. He specifically said that the Government would revoke the retained law by the end of next year, in line with the previous Prime Minister’s policy. Is there now a change in that policy?
Andrew Griffith
That is not the position in the Bill, which does not contain that date. Whether or not the Government’s intention at the time was different, nothing in the Bill says that that will happen. The Government will not diverge for divergence’s sake, because we understand the need for continuity to give financial services companies the confidence that they seek.
Peter Grant
If the sun moves much further, I will have to sit on the other side of the room to keep it out of my eyes, so my apologies for having to move seat during the debate, Dame Maria.
I thank the Minister for doing what I hoped he would have done in the debate on the revocations in clause 1: outlining in terms understandable to a lay person why some specific items of EU legislation are no longer appropriate for the United Kingdom—in fact, it is questionable whether they are appropriate elsewhere. I would have wanted to see that before the changes proposed in other parts of the Bill. On the basis of the Minister’s comments, and the fact that none of the regulators we heard from raised concerns, I am willing to accept that the changes suggested in the clause and the details in schedule 2 are appropriate.
I want to draw attention to a comment the Minister made earlier and to give him the chance to correct it. He suggested that this is EU legislation that Parliament never had the chance to scrutinise, but that is not the case. I spent several years, as other hon. Members did, on the European Scrutiny Committee. Every single piece of legislation the European Union intended to implement came before that Committee, which had the authority to call in Ministers and to put a stop on them approving things at EU Council meetings if the Committee was unsatisfied as to the impact. The House of Commons—the whole of Parliament—had the right to take action to prevent any of those directives from coming into force. The fact that Parliament seldom did that is a failing of this and previous Parliaments. The fact that Ministers had so much free rein to do what they liked, and could ignore Parliament if they wanted to, is not the fault of the European Union; it is because of the relationship between Parliament and Government. This Parliament is unfit for purpose, and Ministers from other members of the European Union would not have been allowed to agree to those directives without a vote in their respective Parliaments. I hope the Minister will be willing to correct the record. We can agree or disagree about legislation that the European Union put in place, but to suggest that this Parliament was somehow unable to have any impact on that legislation is simply not accurate.
Tulip Siddiq
Has the Minister picked up any feedback from the sector about the Government’s proposed reform to the position limits—a regulation under MiFID II—and the fact that they have not been adequately assessed for commodity market speculation risks? How does he plan to keep that issue under review? If he has heard of concerns, is he planning to address them?
Andrew Griffith
I am happy to stand corrected by the hon. Member for Glenrothes, but I am not happy to relitigate matters that the British people settled, given the chance in a referendum. I hope the hon. Member will reciprocate by looking forwards, not backwards, so that we can go forward with the best financial services regulation for the UK.
The matters raised by the hon. Members for Wallasey and for Hampstead and Kilburn are precisely within the scope of the regulators, and they have been consulted on. The hon. Member for Hampstead and Kilburn raised important points about the commodity market. The regulators are aware of those, and they will remain under constant review. Parliament itself has the ability, as always, to set the perimeter within which the regulators operate. Having addressed those points, I have no further comments.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 8
Designated activities
Financial Services and Markets Bill (Fourth sitting) Debate
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Tulip Siddiq ExcerptsTuesday 25th October 2022
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Andrew Griffith
It is certainly not the Government’s intention to create anything other than opportunities for different participants to emerge and bring forward products in the sector. Those could include stablecoins, which are asset-backed cryptoassets. Over time, they could include central bank-issued currencies. The Government have indicated a desire to explore that, but have not yet confirmed that the Bank of England or the Treasury intend to issue.
Of course, we must ensure that products already out there being advertised to our consumers are appropriately regulated within the regulatory perimeter. We are not preferring or advantaging one or other part of that, but without the amendment and new clause we would not be able to bring forward the appropriate regulations, which the regulators will consult on with industry in due course. I hope that clarifies the Government’s thinking. Outwith the Committee, it will be appropriate in due course for the Government to update their set of policy objectives for this space. The subject that we are discussing today is somewhat narrower; it is just the remit of the Bill.
Amendment 22 clarifies that cryptoassets are within scope of the designated activities regime introduced by clause 8. We talked earlier about the designated activities regime—the DAR. By bringing cryptoassets within its perimeter for the first time, some of the societal outcomes and concerns that hon. Members have raised can be addressed. If we do not bring them within the perimeter, those concerns cannot be addressed.
New clause 14 clarifies that cryptoassets could be brought within the scope of the existing provisions of the Financial Services and Markets Act 2000 relating to the regulated activities order. The substance is that cryptoassets will be treated like other forms of financial asset: not preferred, but brought within the scope of regulation for the first time. That is the aim of the new clause. It will ensure that the Treasury is equipped to respond to developments in the crypto sector more quickly and deliver regulation in an agile, risk-based way that is consistent with our approach to the broader financial services sector.
The Treasury will consult on its approach with industry and stakeholders ahead of using the powers, to ensure that the framework reflects the unique features, benefits and risks posed by crypto activities. I think that is the assurance that hon. Members seek: that the Government will consult before seeking to use the powers. Any secondary legislation made to bring new cryptoasset activities into the regulatory perimeter would be subject to the affirmative procedure, so each House will have an opportunity to debate the legislation. That gives Parliament the appropriate oversight.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
We welcome Government amendment 22 and Government new clause 14, which we recognise would extend financial protection to cryptoassets. It is a welcome and important move that will help to prevent high-risk cryptoassets from being falsely advertised to the public.
Does the Minister believe that the definition of cryptoassets is broad enough to capture financial promotions of as yet non-existent cryptoassets? I also wanted to ask him how the broad-ranging definition of “crypto” used in clause 8 takes account of the fact that the Bill only brings stablecoins into payment regulation.
Martin Docherty-Hughes
I draw the Minister and his Department’s attention to the work of Dr Robert Herian, who is one of the primary academics on regulation. I am mindful that he says it is the technology that underpins stablecoin and other related cryptoassets that we seek to regulate through the legislation. I welcome that—it is a step forward—but he has also said that the technology
“may offer an opportunity to recalibrate the powerplay between those who would engage in aggressive tax strategies and planning, and those charged with regulating them”.
Can the Minister advise Members whether he believes that this approach to stablecoin and future innovative technologies, which are already there, will enable a recalibration, so that finance is not utilised in some type of tax dodge? Could he reinforce that point? Every time we hear a discussion about stablecoin and cryptoassets, there is a certain element of finance that I do not think anyone here would really support.
Shaun Bailey (West Bromwich West) (Con)
I, too, support the intentions behind the amendment from the hon. Member for Glenrothes, which were very well articulated by the hon. Member for Wallasey. We often see these people swanning around the place with their ill-gotten gains, while many of our constituents have been on the receiving end of a scam. Even when there has been some form of regulatory investigation, some people do not feel that justice has been done. The amendment tries to make tangible something that may appear quite abstract to our constituents. I support the amendment’s aim but, to follow one of the Committee’s themes, perhaps this is not quite the place for it.
That said, I echo the request for reassurances from the Minister on how we will construct a regulatory regime that makes our constituents feel that there is a degree of responsibility. As Members on both sides of the Committee have said, many of our constituents, particularly those who have been victims of fraud and scams, feel that although the letter of the regulatory system may have been followed, justice has not been done. As we consider the Bill, we need to keep that at the forefront of our mind. I can get on board with the intentions behind amendment 35, but we have to first consider its practical effects. I hope that in his summing up, the Minister will give the Treasury’s thinking on this issue.
Tulip Siddiq
Later, I will come to my amendment on the Bill’s fraud provisions, but I want to express my support for the intentions behind amendment 35. Does the Minister oppose in principle the idea of nominated representatives being held liable for the carrying out of a designated activity when an organisation has been found liable?
Andrew Griffith
I thank my hon. Friend the Member for West Bromwich West for his reasoned response; I make common cause with him. The issue of liability compensation vexes the sector, and a huge number of regulatory interventions and compensation schemes are concerned with that. I say to all hon. Members that the battle against fraud and for recompense goes much wider than the Bill. It includes the Government’s fraud strategy, our endeavours on economic crime and the activities of various regulators, but I associate myself with colleagues’ remarks.
It is said that hard cases make bad law, and regrettably the Government feel that the amendment cannot be supported. We need to be conscious that limited liability is an important principle in UK law. Measures elsewhere in the Bill—we will come to them later in our discussions on clause 8—allow the Treasury to make regulations concerning liability and compensation in relation to designated activities. That goes some way to answering the question raised by the hon. Member for Hampstead and Kilburn. In principle, the Government are absolutely on the side of victims; sometimes it is just a question of bringing forward the appropriate regulations that will not have unintended consequences.
Given the breadth and variety of activities that can fall within the designated activities regime, we need a tailored supervision and enforcement framework for each type of activity, rather than over-generalising. The Treasury can use powers in the DAR to design and create separate supervision and enforcement frameworks.
Proposed new section 71P, which will be inserted into the Financial Services and Markets Act 2000 by clause 8, allows the Treasury to make regulations concerning liability and compensation in relation to designated activities. That means that the Treasury can make provision in secondary legislation for the Financial Conduct Authority to hold liable individuals—this answers the question—working for a company that is carrying out designated activity, where appropriate. We support that in principle, but it is for the FCA to bring forward the regulations for a particular type of activity.
Proposed new section 71Q to FSMA provides that designated activity regulations—
Tulip Siddiq
Am I right in thinking that new section 71R gives the Treasury powers to introduce criminal sanctions without reference to Parliament? Does the Minister think it is right to side-step Parliament in this way?
Andrew Griffith
That is a matter on which we would consult and be advised by the Bank. The Bank is the body with the expertise in this space. It would not be appropriate to try to pre-empt its views. This is an emerging area, and we have to be cognisant of how global clearing houses are developing. The UK hosts a number of the most systemic, but that market share cannot always be assured. This provision allows the regulation to follow the market share, or indeed follow the emergence of new CCPs and new clearing houses. The provision reforms the overseas framework so that the Bank has the power to apply domestic rules to CSDs and non-systemic CCPs as well.
Clause 10 provides the Bank of England with the power to direct individual CCPs and CSDs, requiring them to take action to comply with their obligations or to protect financial stability. Using this power, the Bank may either impose a new requirement or vary or cancel an existing one. The power is equivalent to those that the FCA and the Prudential Regulation Authority have under FSMA in relation to authorised firms, and it contains the same procedural safeguards. That includes, for example, a right of appeal.
Clause 12 ensures that the Bank’s regulation of CCPs and CSDs is undertaken in a way that is consistent with the wider financial services regulatory framework under FSMA. It does this by restricting the general power of direction, which the Treasury currently has over the Bank, to provide that it does not apply to its regulation of CCPs and CSDs. That is in line with the existing exemption that covers the exercise by the Bank of its functions as the prudential regulatory authority, in line with the PRA’s position as an independent regulator.
Turning to clause 11, the FCA is responsible for the supervision of certain other entities that help underpin the proper functioning of markets. Clause 11 gives the FCA general rule-making powers over two types of entity: data reporting service providers and recognised investment exchanges. Recognised investment exchanges are bodies such as the London stock exchange that are recognised by the FCA to facilitate the buying and selling of financial instruments and so help drive investment. Data reporting service providers make trade information public to help market participants make informed investment decisions. They also ensure that the FCA has the information it needs to monitor financial markets and protect against insider dealing and other forms of market abuse.
Despite their importance, both data reporting service providers and recognised investment exchanges currently sit outside the core FSMA regime, as they are largely regulated under retained EU law. To ensure that the FCA has sufficient powers to effectively regulate these entities once retained EU law is repealed, clause 11 brings them into the FSMA framework, in line with the approach taken for CCPs and CSDs in clause 9.
Tulip Siddiq
On clause 9, how does the Minister think third country central counterparties and CSDs will be adequately assessed by the Bank of England for the risks they pose to the UK’s financial stability?
I also have questions on clause 12. I am not sure if the Minister wants to answer those now or to come back to them.
The Chair
I suggest that you make all your comments and then we invite the Minister to respond to all of them at the end.
Tulip Siddiq
We support clause 12, which will empower the Treasury to give directions to the Bank where it considers it necessary in the public interest. Does the Minister not agree that such a mechanism is sufficient to direct the Bank of England when the Treasury believes it needs to do so in the public interest? Does he therefore feel that a so-called intervention power is necessary?
In our evidence sessions, which the Minister and other Members were at, we heard very clearly from the deputy governor of the Bank of England and the former chief executive of Barclays that a future intervention power would endanger financial stability and undermine the independence of the Bank of England. There were stark warnings from our witnesses. Does the Minister agree that it would be reckless to ignore that advice from the experts?
Emma Hardy
I want to add to the points made by my hon. Friend on our concerns around clause 12 and the independence of the Bank of England, given that the Treasury has such significant powers over it. I refer the Minister back to the evidence given by Sheldon Mills from the FCA. He said:
“I have worked in regimes with public interest tests. I ran the mergers division at the Office of Fair Trading and the Competition and Markets Authority, and my learning from that is that, if put in place, such a test should be used exceptionally and with care, and that there should be specificity about the matters of public interest—in this case, financial services—on which it would be used.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 7, Q3.]
That is the FCA asking for specificity—it is easy for them to say—on exactly when the power would be used and when it would not be used.
Victoria Saporta from the PRA stated:
“A formulation whereby the Government can force or direct us to make or amend rules that we have already made, and that fall squarely within the statutory objectives that Parliament has given us, may be perceived as undermining operational independence and all the benefits that I talked about earlier.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 7, Q3.]
Those were really stark warnings from two of our key witnesses from the FCA and PRA, talking about the difficulties they had with this specific clause and how this could be seen as undermining their independence.
Martin Taylor went further in his evidence, when I questioned him on these intervention powers. He said:
“One of the problems that led to the recent turmoil—a very English description of what has just happened—was that the Prime Minister and the former Chancellor chose not to subject the mini-Budget to the scrutiny of the Office for Budget Responsibility.”
He continued:
“However, international investors looking at London will have noted this and it has a bad smell, if I can put it that way.”
Later, he said:
“If you were in Singapore or New York, you might be more tempted to do that than you would have been a month ago. We should not do anything else to make this worse. Everything is being done by the new Chancellor to steady the ship…but moves like this proposed measure just go in entirely the wrong direction as far as I am concerned. I think it is very dangerous.”–– [Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 76, Q149.]
Every single witness seemed to talk about the concerns they have over the level of intervention the Treasury could have over the Bank of England. I would like to hear reassurances from the Minister that he has been talking to the FCA, the other regulators and the markets about this. What reassurance can he give us that this is not HMT trying to again overrule our independent regulators?
Tulip Siddiq
We strongly support the clauses. A sandbox for financial markets infrastructure will support innovations in the fintech sector, such as developments in blockchain, which has the potential to boost the transparency and productivity of the UK’s financial services. Could he please explain, however, whether clause 13 gives sufficient flexibility for the sandboxes to be used to support innovation in a wide range of financial technologies? The Bill says that sandboxing testing will occur “for a limited period”. Will the Minister further define that and set out the minimum timescales that he believes are necessary to adequately test a new innovation in financial technology?
On clause 14 and the reports on FMI sandboxes, which criteria will be used in the reporting of sandboxes, so that Parliament can transparently assess their effectiveness in safely supporting innovation? On clause 16, which sets out that prior to conferring such a power, HM Treasury must consult “the appropriate regulators” or such persons that it considers appropriate. Will the Minister please share his understanding of the definition of “consultation”? Which stakeholders would have to be consulted, and what is the estimated timeframe for such a consultation?
Clause 17 provides the Treasury with a power to amend the list of relevant enactments by way of the affirmative statutory instrument procedure. Will the Minister elaborate on how he sees that working in practice? Would every individual amendment to the list of relevant enactments be brought before the House for scrutiny? I presume so, but I want to have that on the record.
Shaun Bailey
The provisions in clauses 13 to 17 are incredibly welcome, because we are dealing with a financial services landscape that is constantly innovating and changing. I should declare that prior to becoming a Member of Parliament, I worked for the legal team at a major big seven bank and saw these developments as part of my role there. The provisions are very important because they will ensure that, as the fintech sector continues to develop and the regulatory framework continues to advance and change, they can do so within the perimeters of the sandbox arrangement introduced by the Government.
I particularly welcome the clause 16 provisions on consulting regulators, and the fact that there is going to be a discourse with them. We cannot cut regulators out of the conversation. The clauses do not seek to do that, but the hon. Member for Hampstead and Kilburn was right to raise queries. We need a bit more clarity on what the consultation will look like. I fully appreciate that it is not always possible to give instant clarity when introducing primary legislation, but it will clearly be incumbent on the Treasury to ensure that, as the process progresses, His Majesty’s Government are as transparent as possible about what the consultation will look like.
We should remind ourselves that the practical application of the clauses will change and develop as the landscape itself develops, because that is the subject matter that we are dealing with. On clause 16, with respect to the development and work with regulators, I urge my hon. Friend the Minister not to forget the important role that lawtech plays in the regulation and monitoring of a lot of the instruments that will be part of the sandbox regime. It is often not talked about, but fintech and lawtech work hand in hand, side by side, particularly in this financial services sector.
I support the clauses; they are the right thing to do. As hon. Members on both sides of the Committee have articulated, they allow not only the financial services sector to innovate and develop, but the regulation to be developed in tandem with them. I would, however, welcome clarity from my hon. Friend the Minister on the what the practical applications will look like, particularly as we build that framework.
Andrew Griffith
Financial services firms increasingly rely on a small number of critical third parties to provide services, such as cloud computing providers. Although outsourcing can have many benefits, the growing dependence of financial services firms on this small pool of critical third parties also carries risks. A failure or disruption at a critical third party could have systemic impacts affecting market confidence and threatening the stability of our financial system. To mitigate that risk, the Bill grants the financial regulators powers to oversee the services that critical third parties supply to the financial sector.
Clause 18 gives the Treasury the power to designate a third party to the finance sector as critical, bringing the services provided by that third party into the regulator’s oversight. Only third parties whose failure could have a systemic impact on the sector can be designated in that way. Designations will be done in consultation with the regulators, taking into account a clear set of criteria. The first is materiality—that is, how important the services are to the delivery of essential services, such as making payments. The second is concentration—the number and type of firms that rely on that provider. The clause provides the FCA, the PRA and the Bank of England with new rule-making powers to ensure the resilience of services provided by critical third parties. The regulators have published a discussion paper setting out how they may use the powers.
Clause 18 also grants the regulators a power of direction and targeted enforcement powers. As an ultimate sanction, the financial regulators may prevent or limit a critical third party from providing services to the financial services sector. Clause 19 then makes the necessary consequential changes to FSMA to ensure that the regime functions properly, in particular in relation to the Bank of England’s ability to make rules. This approach is flexible and proportionate, addressing the systemic risk posed by outsourcing to keep the UK’s financial system safe, while targeting only the services that critical third parties provide to the finance sector. I therefore recommend that clauses 18 and 19 stand part of the Bill.
Tulip Siddiq
On clause 18, could the Minister set out the range of disciplinary powers that the Bank of England, the FCA and the PRA have at their disposal short of preventing a critical third party from providing new or current services to the financial services sectors? I want some reassurance from him that the clause will not produce an all or nothing approach.
Peter Grant
The amendment is quite simple. I understand the reason behind the concept of the authorised person. The Financial Conduct Authority will never have the resources or capacity to authorise every single financial promotion that somebody wants to publish, so that role needs to be outsourced. My concern is that, in some of the scams that my constituents have fallen victim to, the authorised person has sometimes been a key part of the web of deceit and concealment that has been laid for my constituents and others to fall into. Very often, when it all goes wrong, we find that the authorised person who approved the financial promotion has gone out of business themselves, so there is nobody left to take responsibility.
I am concerned that something that I have seen happen in a small number of cases might become more common. If someone takes a financial promotion that is clearly not compliant with legislation to an authorised person, the authorised person might well say, “No, I am not going to authorise it.” There is nothing to stop the person from then shopping around and finding someone who will agree to approve the promotion on their behalf. Because these promotions are so common, and because there are so many of them being authorised and then issued, it is very difficult for the regulator or anyone else to pick up on the ones that should not have got through. We are relying on the integrity of the authorised person.
The intention behind the amendment is to ensure that, regardless of which authorised person someone goes to, they get a consistent answer—either yes or no. If one authorised person refused to give approval for a promotion, it could then be approved only with the consent of the Financial Conduct Authority. I am not sure that I am minded to press the amendment to a vote, but I hope that the Minister will be sympathetic to the intention behind it. If he feels that the amendment is not necessary, or that its purpose could be achieved by a better route, I would be quite happy to hear his reasons.
Tulip Siddiq
We welcome clause 20, which we recognise would introduce tighter controls on those who approve financial promotions for others, to ensure that consumers are better protected. How does the Minister foresee the clause facilitating improved approver expertise, due diligence and challenges in exercising appropriate regulatory oversight?
Dame Angela Eagle
Obviously this is an extremely important part of the Bill because it creates a regulatory gateway for financial promotions. We know from what the FCA has reported that there is an issue with misleading financial promotions. We all know it from our constituency casework; we know it from some of the scandals that have been carried out successfully.
Part of the trouble is the closeness to the perimeter of regulation. A firm can have part of itself in the perimeter, while other parts are outside the perimeter, but in the promotions, it gives the impression that all the firm is regulated and all of what it is doing is within the perimeter, while advertising in a very misleading way things that are actually unregulated and therefore much riskier. We know that a lot of scams have happened that way. The way in which the FCA tries to deal with this situation is like trying to hold back the tide. The fact that so many of the promotions that it has managed to get a handle on—4,226 of them—have been withdrawn or amended to make them less misleading demonstrates that the FCA is doing its best. However, members of the Committee know that there is a constant battle with scammers, who constantly change how they present information to consumers and potential consumers through an ever-increasing number of gateways, even on things like TikTok. It is difficult for any regulator to get a handle on that, so anything that helps to battle the problem more effectively will be welcomed by all of us.
Will the Minister explain in more detail why he thinks that this is the right way to proceed, and how effective he thinks the powers in clause 20 will be in tackling the problem? We know—I think we will come on to this later in our proceedings—that cracking down on fraud more effectively will also be important. With the financial promotions and unauthorised third parties that deal with granting permissions, we know that the current regime can cause problems. We know that it is failing and that the FCA cannot be expected to do all this work with the resources it has, so will the Minister go into detail about how effective he thinks the measures will be, and say how he will be assessing this approach’s effectiveness? Clearly we want a reduction in the amount of scamming and fraud, and the number of promotions that are misleading or downright lie about the nature of the products they are pushing, so I will be interested to hear how the Minister sees clause 20 as the solution to this difficult problem.
Financial Services and Markets Bill (Fifth sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill (Fifth sitting)
Tulip Siddiq ExcerptsThursday 27th October 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)
The Financial Secretary to the Treasury (Andrew Griffith)
Good morning, Dame Maria. It is a pleasure to serve under your chairmanship once again. I thank all hon. Members who are with us again today.
The Government believe that certain cryptoassets and distributed ledger technology could drive transformational changes in financial markets, offering consumers new ways to transact and invest, and that such technology could pose risks to consumers and financial stability. The Bill therefore allows the Government to bring digital settlement assets inside the regulatory perimeter.
In the first instance, the Government are focusing on fiat currency-backed stablecoins used primarily for payment. These are a type of digital settlement asset that could develop into a widespread means of payment and potentially deliver efficiencies in payments. Clause 21 extends the scope of payment systems legislation so that digital settlement asset payment systems and service providers are subject to regulation by the Bank of England and the Payment Systems Regulator.
Today, the Bank of England regulates systemic payment systems and service providers to those systems, where the Treasury makes an order recognising a particular payment system. That is subject to a high bar. Among other criteria, the Treasury must be satisfied that a system’s potential failure may cause disruption to the stability of the financial system.
Clause 21 also extends the scope of the Financial Services (Banking Reform) Act 2013 to ensure that relevant digital settlement asset payment systems are subject to regulation by the Payment Systems Regulator. That will help to protect user interests, promote competition and encourage innovation.
The changes made by clause 21 and schedule 6 will ensure that digital settlement asset payment systems and service providers are regulated to the same high standards as traditional payment systems.
Clause 22 allows the Government to bring digital settlement assets into the UK regulatory perimeter where they are used for payments. Secondary legislation under this clause could give the regulators powers over payment systems and service providers in order to mitigate conduct, prudential and market integrity risks. It could also allow the regulators to place requirements on firms in relation to appropriate backing assets and capital requirements to manage potential stability risks.
Given the nascent and rapidly evolving nature of the cryptoasset market, these provisions give the Treasury powers to amend the definition of “digital settlement asset” through secondary legislation. That is necessary to ensure that regulation can keep pace with the fast-moving nature of the market. The affirmative procedure will apply to any statutory instrument that seeks to amend the definition.
Clause 22 will also allow the Government to apply existing administration or insolvency regimes to digital settlement asset systemic payment systems and service providers to manage potential failures. The clause therefore provides the Government with the necessary powers to ensure that our legislative approach to digital settlement assets is flexible and responsive, and fosters competition and innovation in this fast-evolving sector. I recommend that the clauses and schedule stand part of the Bill.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to see the Minister still in his place. I speak to clauses 21 and 22 and schedule 6 together.
Properly regulated innovations that have emerged in the crypto space, such as distributed ledger technology, have the potential to transform our economy and the financial services sector. As the Minister will know, many innovative companies are embracing different forms of blockchain to improve transparency in finance and create high-skilled, high-productivity jobs across the UK. However, I draw his attention to the recent collapse in the value of cryptoassets, including several stablecoins, which has put millions of pounds of UK consumer savings at risk. I am sure he is aware that the crypto trading platform Gemini estimated that as many as one in five people in the UK could have lost money in the crash. Do the Government agree with Gemini’s estimate? If so, does the Minister agree that the recent crisis in crypto markets demonstrates that so-called stablecoins are not necessarily stable, and that their instability can pose a significant risk to the public? How did the recent collapse in the value of cryptocurrencies inform the Treasury’s approach to clauses 21 and 22?
The Opposition have yet to be convinced that Ministers have acknowledged the scale of the threat that cryptoassets can pose to consumers and our constituents. In our Public Bill Committee evidence session, Adam Jackson of Innovate Finance, which is the trade body for UK fintech businesses, pointed out that the Bill has failed to set out how regulated stablecoins will interact with a future central bank digital currency. Can the Minister shed some light on that interaction? I also hope he can explain why the Government have opted to bring only stablecoins within the regulation. I am sure he is aware that the EU has just agreed to a comprehensive regime for regulating crypto exchanges and cryptoassets more broadly, and Joe Biden has said that he is looking to do something similar, but the UK will not even be consulting on a comprehensive regime until later this year. Does the Minister agree that this risks leaving our country behind in the fintech and blockchain race?
Even more importantly, does the Minister agree that in the absence of a comprehensive regulatory regime, the UK risks becoming a centre for illicit finance and crypto activity? I looked at the analysis from Chainalysis—a global leader in blockchain research—which pointed out that cryptocurrency-based crime, such as terrorist financing, money laundering, fraud and scams, hit an all-time high in 2021, with illicit finance in the UK estimated to be worth more than £500 million. In the absence of a comprehensive regulatory regime, how do the Government think they are going to protect our consumers from such threats?
Will the Minister shed a bit more light on his strategy? Does he believe that the definition of “digital settlement assets” in clauses 21 and 22 is broad enough for regulations on a wide range of cryptocurrencies, other cryptoassets and crypto exchanges? Finally, on pacing this work, I want to know his intention. How long will the public and the fintech sector have to wait until the regulators are given the power that they need to regulate the types of cryptoassets that I have referred to?
Andrew Griffith
I thank the hon. Lady for her comments. In truth, I agree with the assessment that she has set out. The approach taken in the Bill is to start with stablecoins and those that are most likely to be used as a means of settlement. That is what the Government are taking powers for in the Bill. As she says, we have committed to come back and consult on the issue before the end of the year. The nights are getting darker, so she will not have long to wait.
I am mindful of the opportunities and threats that the hon. Lady set out well when citing the evidence that the Committee heard, and it is my intention that the Government now move at a greater pace than is currently provided for in the Bill, which has been in gestation for some time. We will come forward with the consultation, which will happen before Parliament rises for Christmas. It will be a really good opportunity for us to continue to discuss how we can address some of the issues.
The reason we have started with stablecoins is that there are challenges in bringing them into regulation for the first time. The hon. Lady would not want us to rush, because by bringing them into the regulatory perimeter, we confer a status on them that may lead to some of the consumer harms she mentioned. The Government’s position is to start with the most stable, least volatile coins, which are likely to be used by intermediaries as settlement currencies, and then to go forward and consult from there.
I think I have addressed most of the hon. Lady’s comments. I do not disagree with her about the scale of the threat. There are other measures, including those that regulate the online promotion of cryptoassets, that will help to protect consumers who suffer harm.
Tulip Siddiq
The Minister has talked about regulated stablecoins, but I did not get an answer to my question about how they will interact with the central bank digital currency that we know is very much on the horizon. Have the Government thought about that?
Andrew Griffith
Having left the EU, we have a unique opportunity to take the approach to the UK regulatory framework that most suits our markets. The Financial Services and Markets Bill is delivering on that and will support efforts to build on our historic strengths as a global financial centre. That includes developing our relationships with jurisdictions around the world, attracting investment and increasing opportunities for cross-border trade.
Mutual recognition agreements are one of the tools that the Treasury has to support the openness of the UK’s international financial services, alongside free trade agreements, financial dialogues and equivalence regimes. MRAs are international agreements that provide for recognition that the UK and another country have equivalent laws and practices in relation to particular areas of financial services and markets regulation. They are designed to reduce barriers to trade and market access between the UK and other countries. The UK is currently negotiating its first financial services mutual recognition agreement, with Switzerland.
Giving effect to MRAs, including the agreement being negotiated with Switzerland, is likely to require amendments to domestic regulation. Clause 23 therefore enables changes to be made through secondary legislation to give effect to that agreement and future financial services MRAs. That secondary legislation will be subject to the affirmative procedure, to ensure parliamentary scrutiny of the proposed changes. That will be in addition to the parliamentary scrutiny of the mutual recognition agreement that Members will be familiar with under the Constitutional Reform and Governance Act 2010, known as CRaG. Parliament will, therefore—I am anticipating questions that hon. Members may raise—be able to scrutinise MRAs in the usual way before this power is used to implement the ratified agreements.
Clause 23 can be used only to implement MRAs relating to financial services, not to make broader changes to legislation or to implement any other form of international agreement. Each financial services MRA will be different, but it is anticipated that clause 23 will allow the Treasury to confer the necessary powers or impose duties on the financial services regulators to give effect to the MRA. That could include a duty to make rules on a particular matter—for example, rules governing cross-border provision of particular financial services by overseas firms.
The clause requires the Treasury to consult the relevant regulator before imposing any duties. In financial services regulation, market access between the UK and other jurisdictions is generally delivered through the UK’s equivalence framework for financial services, and the mechanisms under that framework are primarily found in retained EU law and based on the EU model of equivalence. The MRAs negotiated by the Government may in some cases go further than, or simply function differently from, those equivalent mechanisms. The clause therefore includes the power to modify the application of existing equivalence mechanisms, or to create new mechanisms to reflect what has been agreed in the relevant MRA.
Together, those provisions ensure that the UK can negotiate and deliver ambitious MRAs and implement the agreements in a timely manner that maintains the UK’s credibility in negotiating future MRAs. I therefore recommend that the clause stand part of the Bill.
Tulip Siddiq
We support clause 23, but how does the Minister think it will help the UK to secure international trade agreements that are favourable to the UK’s financial services sector? I ask because the Government have made very little progress on securing trade deals for the City, including with the EU, which remains, as I am sure he will agree, one of our most important export markets.
We completely recognise that regulatory divergence with the EU on areas such as fintech and Solvency II will help boost our competitiveness on the world stage. However, we cannot ignore the fact that Europe will always remain an important market for our financial services sector. Last year, exports of financial services to the EU were worth more than £20 billion—I am sure that the Minister knows that—which was 33% of all UK financial services exports. I have been speaking to the sector and it is disappointed that the Government have so far failed to finalise a memorandum of understanding on regulatory corporation, or to negotiate mutual recognition with the EU of professional qualifications for our service sectors. I want to hear more about that from the Minister.
Since 2018, the value of UK financial services exports to the EU has fallen by 19% in cash terms, and very little progress has been made in securing trade deals around the world for our financial services. Will the Minister tell us how the clause will help secure important agreements with the EU? I also want to hear more from him about how he hopes it will turn around the Government’s record on boosting financial services exports.
Dame Angela Eagle
I want to focus on parliamentary scrutiny of these changes. They are quite technical, but they could be very important, including for consumers. If we do not get them right, they could have unintended consequences for financial stability and so on, because of the range of agreements under discussion. One assumes that those negotiating the agreements have a reasonable model of what they want to achieve, but that will also be the case for those with whom we are negotiating. The context is about gaining an advantage in the international competition for financial services. Indeed, both Front Benchers have hinted at that. If we are looking for a competitive advantage and growth, that kind of struggle for an advantage has obvious implications.
Until we left the EU, much of the negotiation on the financial directives that were promulgated went on within the European Commission. The UK had a great deal of influence over how those directives were negotiated, but it did not always win out; for example, the markets in financial instruments directive was a cause of some consternation for our financial services, because it did not fit with our kind of plan. We were always the country with the largest financial services sector, and were mostly likely to be impacted by agreements and compromises that did not clearly represent our best interests. We can now hope to move back towards that position, if we can come to an agreement. However, as my hon. Friend the Member for Hampstead and Kilburn said, we are constrained by the fact that a great deal of our financial services activity happened within the EU. I suspect that the divergence is likely to become greater over time. What does the Minister think would constitute a timely attempt by Government to ensure proper parliamentary scrutiny of these things? Aside, that is, from Parliament potentially debating 50 pages of extremely technical statutory instruments.
We know that the Treasury Committee will have a say, but some of the changes negotiated in these agreements with other countries may have important impacts on consumer rights, and larger number of Members of Parliament might want a say on them. Perhaps the Minister could say how he envisages the process going forward. I presume we will have some agreements—there has been a slow start. How can Parliament keep an appropriate eye on the philosophy behind the agreements, and the way in which they are going, as we diverge more from our closest partner?
Dame Angela Eagle
I approve completely of having a competitiveness and effective competition analysis duty being attached to the regulators, and for them to report on it annually, which would allow us to see how much they are taking account of it. I would also like them to be thinking about financial inclusion, but that comes later in our proceedings.
Will the Minister tease out a little for the Committee how he thinks the regulator can go about discharging that duty safely? We have seen some of the carnage caused by bad regulation in the energy sector, where a superficial view of competition has led to problems in that market, with companies collapsing. There is an obsession with the idea that competition is about the number of firms, whether or not they are sound. If something similar were to happen in this context, it could be even more serious and even more costly. I broadly support the aims of clause 24, but would welcome the Minister’s thoughts on how the problems and the bad effects in the energy market caused by the regulator’s misguided attempts to prove that there was competition—the trap of thinking that competition is just about the number of firms—can be avoided in this context.
Tulip Siddiq
I will speak to clause 24. I was going to speak to amendment 43, but it has not been moved.
We strongly welcome clause 24. We are completely committed to supporting the City to retain its competitiveness on the world stage and we support the new secondary objective for regulators to consider competitiveness and growth. However, I hope the Minister will agree that financial stability and consumer protection must always remain the priority for our regulators. Any compromise on those important objectives would be self-defeating. The competitiveness and global reputation of the City depends on the UK’s reputation for strong regulatory standards.
Although supporting the financial services sector to thrive and grow will be key to delivering the tax receipts that we need to fund public services, it will not be enough. To get the economy growing, the Minister knows that we need to harness the power of the City to drive growth in every part of the economy and the country. The financial services sector will have to play an important role in driving our transition to a low-carbon economy and creating the green jobs and businesses of the future. Perhaps the most interesting part of the new secondary objective is how our regulatory system can incentivise medium and long-term growth beyond the financial services sector in the wider economy.
Andrew Griffith
I thank my hon. Friends the Members for Wimbledon and for North Warwickshire for raising some important matters, and those on the Opposition Front Bench for their support for clause 24. They clearly speak with a great deal of authority from their own experience, and the Government will take away their points and consider them further. Let me describe the clause, and then I will try to come back to the points that have been made.
The Bill asserts our domestic model of financial services regulation, whereby the Government and Parliament set a policy framework within which the regulators are generally responsible for setting the detailed rules. It is therefore necessary to ensure that the regulators’ objectives, as set out in the Financial Services and Markets Act 2000, are appropriate, given their expanded responsibility and the UK’s position outside the EU. The Government believe that the regulators’ current objectives set broadly the right strategic considerations, but we also consider it right that the regulators’ objectives reflect the need to support the growth and international competitive-ness of the UK economy, particularly the financial services sector. I welcome Members’ support for that.
The clause introduces new secondary objectives for the FCA and PRA in relation to growth and competitiveness. The new objectives will require the FCA and PRA to act in a way that, subject to aligning with relevant international standards, facilitates the international competitiveness of the UK economy, including the financial services sector, and its growth in the medium to long term. For the FCA, that objective will be secondary to its strategic objective to ensure that markets function well—I believe the hon. Member for Wallasey mentioned the importance of that, which is clearly paramount—and to its three operational objectives, which sit below the strategic objective, to ensure that consumers receive appropriate protection, to protect and enhance the integrity of the financial system, and to promote effective competition. Again, the hon. Member for Wallasey mentioned financial inclusion, and we will talk about that when we debate later clauses. For the PRA, the growth and competitiveness objective will be secondary to the PRA’s general objective to ensure that UK firms remain safe and sound, and to its insurance-specific objective to contribute to the securing of an appropriate degree of protection for those who are or may become policyholders.
The new objectives do not require or authorise the FCA or PRA to take any action inconsistent with the existing objectives. I will come back to the hon. Member for Wallasey on that, but they are subordinate objectives and secondary to their financial stability and prudential objectives, which they talk about. The new objectives will give the regulators a legal basis for advancing growth and international competitiveness for the first time. It does not go quite as far as my hon. Friends the Members for Wimbledon and for North Warwickshire have suggested in the amendment. Nevertheless, it is a significant enhancement in that respect on the status quo. As they said, it moves us in line with other international jurisdictions. That is a balanced approach. By making those objectives secondary, we are nevertheless giving the regulators an unambiguous hierarchy of objectives that prioritises safety and soundness, and market integrity. I therefore commend clause 24 to the Committee.
Amendments 46 and 47 seek to amend the new secondary objectives and require the regulators to promote, rather than facilitate, the international competitiveness of the UK economy and its growth in the medium to long term. The wording of the objectives in clause 24 aligns with the PRA’s existing secondary objective, which is to facilitate effective competition. The vast majority of respondents to the November 2021 future regulatory framework review consultation supported the Government’s proposal to introduce new secondary objectives for the FCA and the PRA to facilitate growth and competitiveness.
I reassure my hon. Friends about the importance of the Government’s plans on growth and competitiveness. We expect that there will be a step change in the regulators’ approach to the issue that will be similar to the change that took place following the introduction of the PRA’s secondary competition objective in 2014, which led to a significant number of new policies to facilitate effective competition. I therefore ask my hon. Friend the Member for Wimbledon to withdraw the amendment.
In responding to the hon. Member for Wallasey, I will not assume to myself a degree of expertise about the energy market or any failings in that market. However, I completely agree about the need to avoid an overly binary or unbalanced approach to competition in any market. I think we all agree that we need to get the right balance. On how the regulators can safely advance the objectives, my response is as follows: with a balanced approach; with the right level and volume of resources, in terms of both the quality of expertise and the people they attract and retain; and with good governance. The hon. Lady herself, like all Members of Parliament, is also part of the regulators’ governance model.
Tulip Siddiq
The Minister sounds like he is closing his speech, and I have not heard what he thinks about TheCityUK’s suggestion of asking regulators to report their performance against criteria and metrics. Before he finishes, will he give us his opinion?
Andrew Griffith
The hon. Lady is right to pull me up on my failure to address her point, although later clauses and amendments also address it. I am familiar with TheCityUK’s proposal, and the Government are prepared to look at that area. She gave an example of the regulators helping the real economy through sustainable investments, and potentially reporting some metrics against that. That is worthy of consideration.
Stephen Hammond
I am not sure whether I am supposed to, Dame Maria, but I refer the Committee to my entry in the Register of Members’ Financial Interests.
Like many Members, I welcome the thrust of clause 25 and think it is important that we are setting the principle of net zero in legislation. However, I agree with my hon. Friend the Member for North Warwickshire. Clause 26 amends FSMA 2000 in relation to the content of the annual report. I will not go through all the arguments that we may well make when my hon. Friend’s new clause is debated, but I want to register with the Minister my concern about the phrase “in its opinion”. There is a reputational risk for the regulator, as much as for anyone else, if someone were to examine it later. I will not detain the Committee any longer, but I will want to speak to this point quite extensively when my hon. Friend’s new clause comes up.
I ask the Minister to look at the phraseology and consider whether it is appropriate. As we have all said in Committee, during the evidence sessions and in widespread discussion of the Bill, the need for clear metrics, regulatory transparency and regulatory accountability is key. That is one of the things we have all welcomed in the Bill.
Tulip Siddiq
We welcome clause 25 and the new regulatory principles for the FCA and the PRA, which will require the regulators, when discharging their general functions, to have regard to the need to contribute towards compliance with the Climate Change Act 2008—legislation that, I remind the Minister, was brought in by a Labour Government.
However, we think that the Bill lacks ambition on green finance. The Government promised much more radical action. We were promised that the UK would become the world’s first net zero financial centre, but we are falling behind global competitors. In the evidence session, William Wright, the managing director of the New Financial think-tank, stated that the UK is a long way behind the EU on both the share and the penetration of green finance in capital markets. Research by the think-tank has suggested that green finance penetration in the UK is at half the level of the EU and roughly where the EU was four years ago.
I will discuss what the Opposition would like to see in the Bill on green finance when we discuss new clause 9. For now, will the Minister set out what assessment he has made of the impact that clause 25 will have on investment decisions and other financial service activities in the sector?
In the evidence session, William Wright suggested that there is “a disconnect” between the Government’s stated position that the UK is already a global leader in green finance and the ambition for the UK to become the leading international green finance centre. Does the Minister really believe that the provisions in clause 25 are sufficient to close that gap? How much further will the Government go on this agenda? Does the Minister think we have been as ambitious as possible in the Bill, considering that the problem is on our doorstep and is so important for future generations?
Andrew Griffith
A lot of valuable points have been raised by Members on both sides of the Committee. This is the right moment for colleagues to make those points, and I hope it is acceptable to the Committee if I take some of those points away and follow up with further information later, rather than dismissing them trivially here.
The hon. Member for Kingston upon Hull West and Hessle raised something that is close to many of our hearts: nature. She is quite right that the Bill is focused on net zero and climate. She is absolutely right that we cannot achieve our climate goals without acknowledging the vital role of nature. That should concern us all, as it is part of the carbon ecosystem. I will take her points away to see whether there is anything else that can be done. I hope she will accept that the datasets and the maturity with which some aspects can be measured are not as sophisticated as in the science of climate change. That might be one impediment to the Government moving forward and baking it into statute, but I will take it away and follow up with the hon. Lady.
The hon. Member for Wallasey is absolutely right about the transformative scale of moving to a low-carbon economy. It will change every single aspect of how we generate energy, the activities we engage in, the homes we live in and our financial centre. We are at one on that. I believe that the wording of the clause and the replacement of the “have regard” achieves that objective, combined with the legislative commitment—by the Labour Government, if the hon. Member for Hampstead and Kilburn so wishes—that is being incorporated into the duty by reference. It does do that. There is an ambition there, and we should seek to satisfy it.
Tulip Siddiq
Obviously I do not want to offend the Minister, but I point him to the facts. I would like to hear what he has to say in response to the evidence given by William Wright, who, I would point out, is not a Labour MP but is independent. The think-tank’s research found that green finance penetration in the UK is at half the level of the EU, and roughly where the EU was four years ago. When the Minister writes to me, will he point me to specific evidence that contradicts what we heard in the evidence session?
Tulip Siddiq
We support the powers granted to the Treasury in clause 27 to require the regulator to conduct reviews of existing rules. We think that is a proportionate and sensible approach. We agree that mechanisms should be available to allow Ministers to ask a regulator to think again about a rule that may not be working in the public interest. However, while it is important that regulators are held to account, does the Minister agree that the operational independence of regulators must be paramount? Does he therefore agree that, with the powers to direct rule making already included in the Bill, a so-called intervention power would be unnecessary and dangerous?
During the evidence session, the deputy governor of the Bank of England, Sir Jon Cunliffe, said that an “intervention power” risked undermining perceptions of the central bank’s 25-year-long independence. He warned that, in turn, it would undermine the global reputation of our financial services sector. Even though the Minister was there, I will quote him:
“That credibility of the institutional framework is very important to the competitiveness”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 39, Q76.]
of the UK. Martin Taylor, a former Bank of England regulator and chief executive of Barclays said that, while it would not necessarily turn us into “Argentina or Turkey overnight”, that would be the direction of travel if such a power were introduced. I ask the Minister once again, echoing what my hon. Friend the Member for Wallasey said: why does he believe that the powers in clause 27 are not sufficient, and why do the Government continue to ignore the advice of the Bank of England?
Andrew Griffith
We have debated this matter under a number of clauses already. My commitment to table the draft wording of the proposed intervention power during this Committee remains. That remains the intention. I do not accept the characterisation of a sledgehammer and a nut. What we are doing in the whole of the Bill is giving vast new powers to the regulators that were previously held and exercised, with potential oversight and intervention, from Brussels. We are bringing that into the UK rulebook. The proposed power here, and any proposed intervention power, is a proportionate response to the significant expansion in regulations of financial services, which touch and are capable of touching every aspect of human life in this country.
It is important that we give the Government of the day, subject to Parliament, that failsafe ability. It may one day even be the hon. Member for Hampstead and Kilburn who is exercising that power, and she may be grateful for the foresight of this Committee in providing that, with the caveat that this is clearly anchored in the public interest. That is a well-understood concept. I do not want to rehearse all the points that the Committee heard from witnesses, but it is the Government’s view that this power is necessary. To the extent that we seek to go forward with what is called the public interest intervention power, beyond merely directing regulators to look again at rules, we should discuss that again in the context of what the checks and balances on that would be.
Tulip Siddiq
I am not sure, but I think the Minister was advocating for a general election; I am not putting words in his mouth. I understand what he is saying, but we asked the witnesses to come and give evidence for a reason, so he needs to respond to the concerns of those witnesses, who were clearly concerned about this intervention power. Those two key witnesses said they were worried about undermining the independence of the Bank of England. What is the Minister’s opinion about that?
Andrew Griffith
The Treasury has consulted widely on the future regulatory framework. One of the key points made by all the industry participants, very few of whom were part of the witness sessions—although we did hear from two particular witnesses, we did not hear the same volume of responses as in past consultations—was that industry is firmly of the mind that this is proportionate and potentially required.
I will clarify a couple of things for the Committee, because these matters are often misunderstood. First, we have operationally independent regulators. That is absolutely right, and no one is seeking to interfere in the findings of any particular regulatory review with respect to an industry participant. Secondly, none of this speaks to the scope of the Monetary Policy Committee. Sometimes the debate is couched in terms of monetary policy independence. What we are actually talking about is the regulatory rulebook. There are large public policy considerations for the insurance industry, for example, and in relation to consumer duty matters, such as access to cash and consumer protection, which we will debate in later sittings. Those are all matters that the Government consider and will continue to consider, notwithstanding the evidence given in that witness session. That is the right, proportionate response.
I should clarify that the hon. Member for Hampstead and Kilburn will get her general election in due course, but I fear she will have some time to wait.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Financial Services and Markets Bill (Sixth sitting)
Tulip Siddiq ExcerptsThursday 27th October 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)
Stephen Hammond (Wimbledon) (Con)
I beg to move amendment 48, in clause 28, page 40, line 39, at end insert—
“3RF Requirement to publish specified information
(1) The Treasury may at any time, by notice in writing, direct a regulator to measure its performance against specified metrics and to publish such information if—
(a) the regulator does not already publish such information, or
(b) the Treasury consider the information published is insufficient for the purposes of holding the regulator to account.
(2) A direction under subsection (1) may—
(a) specify the element of the regulator’s performance to be measured;
(b) specify the appropriate metrics to be used;
(c) specify the period for which performance must be measured; and
(d) specify the date by which the performance information must be published.
(3) As soon as practicable after giving the direction under subsection (1) the Treasury must—
(a) lay before Parliament a copy of the direction, and
(b) publish the direction in such manner as the Treasury considers appropriate.
(4) A direction under subsection (1) may be varied or revoked by the giving of a further direction.”
I again guide the Committee to my entry in the Register of Members’ Financial Interests. Clause 28 amends the Financial Services and Markets Act 2000. It gives the Treasury the power to make or to direct rules. A key element of our discussions has been transparency and accountability, and the amendment is designed to make things a little clearer by ensuring that regulators report regularly and transparently on key metrics. The regulators are already mandated to report to His Majesty’s Treasury in their annual reports, which have to contain some performance metrics; the issue is that those metrics are selected by the regulator themselves. At the moment, an oversight body has the power to send for “persons, papers and records”, but it does not have the power to mandate regulators to report on specific performance metrics over time. I think that that leaves a hole in terms of both accountability to Parliament and transparency of regulators.
I accept the evidence that Martin Taylor gave the Committee that Parliament and the Government have a huge amount of influence. Equally, though, the chief executive of the Prudential Regulation Authority, when asked elsewhere for his thoughts on the competitiveness objective, described a lot of it as a “red herring”. When asked how he would report on the competitiveness objective, he said that he had “no convincing answer”. It is important that there is a convincing answer, and that is, in effect, what my proposed new section 3RF of the 2000 Act would provide.
As I have stated quite clearly, I do not believe that this is about a race to the bottom. We need a well-regulated, tough regulated, transparently regulated jurisdiction. Regular accountability on performance is in no way an infringement of a regulator’s independence; I think that it would enhance the regulator’s reputation. The amendment therefore sets out a number of metrics on which a regulator might be asked to report. That could work relatively easily. For instance, the Treasury could use its powers to set out more clearly the elements on which the regulator should measure and report its performance. It could also set out definitions that are relevant to the measures themselves. I think that the direction potentially should be able to be scrutinised by the public, and particularly by Parliament and the Treasury Committee, and that the information should be published, and published more frequently.
My amendment is designed to ensure that the regulator not only has the objective, but has to report on it on a very clear set of metrics, which would then allow us in Parliament and the public to ensure that it is meeting the objective.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
I thank the hon. Member for tabling the amendment. In principle, Opposition Members are supportive of providing regulators with clearly defined metrics to assess their performance. We would need further information about how it would work in practice before we could lend our support to the amendment, but in principle we are in agreement with the views that the hon. Member has outlined.
The Financial Secretary to the Treasury (Andrew Griffith)
I am grateful to my hon. Friend the Member for Wimbledon for raising this important issue, and I note the potential, in-principle support of the hon. Member for Hampstead and Kilburn, speaking for the Opposition.
The Government agree that it is vital to have appropriate public metrics for holding regulators to account on their performance. FSMA already requires regulators to report annually on how they have discharged their functions, advanced their objectives and complied with their other duties. In addition, schedules 1ZA and 1ZB to FSMA provide that the Treasury may direct a regulator to include such other matters as it deems appropriate in the regulator’s annual report.
As part of their annual reports, both the Financial Conduct Authority and the PRA publish data on operational performance. The FCA annually publishes operating service metrics relating to authorisations, timeliness of responses to stakeholders, and regulatory permission requests, among other things. In April 2022, the FCA also published a comprehensive set of outcomes and metrics that it will use to measure and publicly report on its performance. The PRA annually publishes data on its performance of authorisation processes.
Amendment 48 seeks to allow the Treasury, in addition, to determine what metrics the FCA and the PRA should use to measure their performance and over what period, and other technical aspects of the measurement and publication of metrics. Let me reassure my hon. Friend of the importance that I attach to the matter he has raised. I have discussed it with the CEOs of the PRA and the FCA since taking up my role, and I will continue to do so. I am open to discussing the matter with my hon. Friend outside the Committee to see what further reassurance the Government could give, or what further measures we could take. I therefore ask him to withdraw his amendment.
Siobhain McDonagh (Mitcham and Morden) (Lab)
I rise to support my hon. Friend the Member for Kingston upon Hull West and Hessle. Like her, I am on the Treasury Committee, and I have to say to this Committee: please pass the amendment, so she can stop talking about it in our meetings! [Laughter.] To be fair to her, it is something that she repeats and that bears repeating, because I fear that if the FCA is not responsible for having regard to financial inclusion, the responsibility continues to sit with us as MPs. Who became aware that closing bank branches in town centres was getting to be a problem? Who was concerned about access to ATMs, especially free ATMs? It was MPs, through their constituents raising the issue with us. This is a cross-party effort. It is not the sole responsibility or the sole campaign issue of one side of the House.
More and more of our hard-working, respectable constituents are being excluded from financial products. They desperately want to insure their cars, but if they pay their car insurance monthly, they pay more. They desperately want to contribute to their pensions and life insurance policies to give comfort to their families. They want to do all those things, but an increasing proportion of them are being excluded from those products. If the FCA had regard to how the issue affects an ever growing part of our society, we would at least have a different way of looking at it.
An issue that I know is close to your heart, Dame Maria, is women’s exclusion from many financial products, given the nature of their work, including part-time work and periods off work for raising children. In the end, the taxpayer picks up the bill if those products are not available. It is in the interests of all of us—our constituents and our parties—to support the amendment in the name of my hon. Friend the Member for Kingston upon Hull West and Hessle.
Tulip Siddiq
When I was first elected, I was told by another MP here that I should pick an issue, stick to it and talk about it constantly. I pay tribute to my hon. Friend the Member for Kingston upon Hull West and Hessle for following that advice to a tee. I follow in the steps of my hon. Friends the Members for Kingston upon Hull West and Hessle, for Wallasey and for Mitcham and Morden, who spoke about financial inclusion and how it affects us all. Later, we will debate essential face-to-face banking services. For now, I want to focus on the poverty premium, which my hon. Friend the Member for Mitcham and Morden mentioned: the extra costs that poorer people have to pay for essential services such as insurance, loans or credit cards.
We believe that everyone should have access to financial services—whether it is savings schemes or insurance—when they need them, regardless of their income and circumstances. If the Government are serious about building a strong future for our financial services outside the EU, they should recognise that the Bill is an opportunity to rethink how financial resilience, inclusion and wellbeing are tackled in the UK.
We support amendment 1 and new clauses 2 and 3, which would give the FCA a new cross-cutting “must have regard” to financial inclusion measure as part of its regulatory framework. As the Minister knows, that would mean that the FCA would have to consider financial inclusion across all its activities and report on its progress.
In our evidence session, Fair by Design talked about the higher costs that poorer people have to pay for insurance products. Research from the Social Market Foundation, with which the Minister will be familiar, has shown that those who are unable to pay for their car insurance in annual instalments face an average extra cost of £160. Surely the Minister agrees that that is unjust, and that regulation must play a role in tackling the poverty premium. If he accepts that principle, what is the argument against introducing a new “have regard” provision to empower the FCA to monitor how well financial services are meeting the needs of low-income consumers? For example, a “must have regard” for financial inclusion could allow the regulator to review practices such as insurers charging more to customers who pay for their insurance in monthly instalments.
Does the Minister recognise that exclusion from financial services is a growing problem in the UK? If he rejects the arguments for a “have regard”, what solution does he propose instead? It is something we all see in our casework as constituency MPs.
Andrew Griffith
I thank hon. Members for their contributions. I appreciate the work of the hon. Member for Kingston upon Hull West and Hessle. I have been to Hull, but I think that everyone has constituents who face precisely the problem of which she speaks, so I will depart from my text.
The Government oppose the new clauses and the amendment. However, we have heard from the FCA its opposition to this measure and its contention that it is not required. It would say that—I understand that point. I would be happy to consider how the Government respond. That is the most worthy response I can make; I am not inclined to dismiss any of the hon. Lady’s arguments.
Andrew Griffith
Under section 1JA of FSMA 2000 and section 30B of the Bank of England Act 1998, the Treasury must make recommendations to the FCA and the Prudential Regulation Committee at least once in each Parliament on aspects of the economic policy of His Majesty’s Government. The FCA and the PRC, as the governing committee of the PRA, should have regard to these matters when carrying out their functions.
Currently, there is no statutory requirement for the FCA and the PRC to respond to the Treasury’s recommendations and explain how they have had regard to them. Clause 33 therefore amends section 1JA of FSMA 2000 and section 30B of the Bank of England Act 1998 to create a requirement for the FCA and the PRC to respond annually. The response must outline the action the regulator has taken or intends to take, or the reasons it has not taken and does not intend to take action, on the basis of the recommendations. The response will be laid before Parliament by the Treasury.
The clause is therefore intended to increase transparency of how the FCA and the PRA have taken into account these recommendations. As a result, this clause aligns the FCA and the PRC with the statutory requirement for the Bank of England’s Financial Policy Committee, which is already required to respond to the recommendation letters sent to it by the Treasury. Finally, this measure formalises an emerging practice, as the FCA and PRC have previously responded to recommendation letters from the Treasury. I therefore commend the clause to the Committee.
Tulip Siddiq
I have one quick question for the Minister. Are the Government required to consult or give advance notice before sending a policy letter to regulators? If not, is there a risk that the new “have regards” for different policy areas could be dropped on the regulators from nowhere, and could distract the FCA and PRA from their primary and secondary objectives?
Andrew Griffith
FSMA 2000 requires the PRA and FCA to set up and maintain a number of stakeholder panels, also known as statutory panels. Those panels are intended to provide valuable insight, advice and challenge to the regulators’ rule making, drawing on the experience and expertise of their respective memberships. The regulators have regular meetings and discussions with their panels. In those, most major policy and regulatory proposals are presented for comment at an early stage.
The FCA’s statutory panels are the financial services consumer panel, the practitioner panel, the smaller business practitioner panel, and the markets practitioner panel. The Bill also puts the listing authority advisory panel on a statutory footing. The PRA’s statutory panel is the practitioner panel, and the Bill also puts its insurance sub-committee on a statutory footing as the insurance practitioner panel. The Payment Systems Regulator has one statutory panel, which covers the full range of the PSR’s responsibilities.
The additional responsibilities that the regulators take on following the repeal of retained EU law will result in the regulators making more rules across a broader range of topics. The UK’s departure from the EU will therefore increase the opportunities and the need for the regulators to consult their statutory panels from the outset of policy and regulatory development; that was not possible to the same extent while the UK was a member of the EU. It will strengthen the panels’ important ability to provide stakeholder input into the development of policy and regulation.
Clause 34 therefore requires the FCA and PRA to include information in their public consultations about any engagement that they have had with statutory panels. Clause 35 requires the regulators to provide information in their annual reports on their engagement with the statutory panels of the FCA, PRA and PSR over the reporting period. The FCA and PRA already voluntarily provide some information on panel engagement as part of their annual reports. This clause will formalise the existing practice, ensuring clear and consistent communication by the regulators.
The regulators, working with the panels as appropriate, will be responsible for determining how to meet these requirements. Importantly, the regulators will not be required to publish information that they deem to be against the public interest. That will ensure that the FCA and PRA can find the appropriate balance between transparency and the confidentiality crucial to ensuring an open exchange of views between panel and regulator. I therefore recommend that these clauses stand part of the Bill.
Tulip Siddiq
I will speak to clauses 34 and 35 together. Statutory panels make an invaluable contribution, based on panel members’ experience and expertise, to the FCA’s and PRA’s policy-making functions. However, we feel that transparency is vital in ensuring that the public feel that financial services regulation is working in their interests. That is why we support these clauses, which we recognise will increase transparency by guaranteeing consistent communication by regulators about their engagement with panels. Does the Minister agree that representation of the voices of consumers and the public on the FCA’s statutory panels also plays an important role in upholding the transparency of the regulatory process? Ultimately, it is the public, both as consumers and as taxpayers, who are most impacted when regulations go wrong and when regulators fail to adequately uphold consumer protections or financial stability.
I draw the Minister’s attention to the written evidence to the Public Bill Committee from the Finance Innovation Lab. It recommended that
“the government mandate public interest representation of at least 50% on all groups and committees providing advice and making decisions about financial services policy and regulation.”
I want to know whether the Minister has considered the Finance Innovation Lab’s argument about the transparency of statutory panels, and whether that could be strengthened by
“ensuring that the voices of consumers and citizens are given at least equal weight to the voice of industry.”
If he is not familiar with the written evidence, he is welcome to write to me later.
Andrew Griffith
I will speak first to clause 36 and then turn to Government amendments 3 and 4. Parliament, through primary legislation, sets the overall approach and institutional architecture for financial services regulation. This includes the regulators’ objectives and requirements to ensure appropriate accountability. Parliament therefore has a unique and special role in relation to the scrutiny and oversight of the FCA and the PRA. Given the regulators’ wide-ranging powers, which they exercise independently of Government, it is vital that Parliament can continue to effectively scrutinise and hold the regulators to account. This is particularly important given that the regulators will have additional rule-making responsibilities following the repeal of retained EU law.
Parliament has a number of existing mechanisms to scrutinise the regulators, including the targeted scrutiny provided by Select Committees. The Government’s view is that those are appropriate and flexible and should continue to be the principal ways in which Parliament holds the regulators to account. Clause 36 adds to these existing tools to support more effective accountability of the regulators to Parliament. The clause also addresses concerns raised in debates during the passage of the Financial Services Act 2021.
Members of both Houses highlighted the importance of the regulators having sufficient regard to the conclusions of parliamentary scrutiny, and the importance of parliamentarians receiving sufficient information from the regulators to facilitate their scrutiny and ensure that it is effective. The clause inserts new provisions in FSMA to require the FCA and the PRA to notify the Treasury Committee when they publish consultations on proposed rules, setting out how they exercise any of their general functions, or on proposals under a statutory duty.
The new provisions also require the regulators to draw the Treasury Committee’s attention to certain key aspects of a consultation, including how proposals advance their objectives and have had regard to the regulatory principles. The clause also requires the FCA and PRA to respond in writing to formal responses to any of their public consultations from any parliamentary Committee. While it is expected that the regulators would always respond, this will give Parliament reassurance by placing this on a statutory footing. The Government consider that placing those requirements on the regulators on a statutory basis is appropriate due to the unique circumstances of the financial services regulators’ wide remits, and their position as independent public bodies that are accountable to Parliament.
I now turn to amendments 3 and 4, which make a technical change to the new requirements for the FCA and PRA to notify the Treasury Committee when they publish a consultation. Clause 36 contains a minor drafting error, by requiring the regulators to set out how the proposed rules are “compatible” with the regulatory principles. The Government have tabled these amendments to correct that and remove any ambiguity, and to align the requirement in clause 36 with the broader requirements in FSMA.
Tulip Siddiq
The Minister has already said that he is open to discussion about this, but I specifically want to turn to the role of the Treasury Committee. The Opposition are pleased to see a strengthened role for the Treasury Committee in scrutinising financial services regulation. However, TheCityUK, in its written submission to the Committee, set out that, while the Treasury Committee has the power to send for persons, papers and records, it does not have the power to mandate the regulators to report on specific performance metrics over time.
TheCityUK argues that the efficiency and effectiveness of regulators, and the impact of their operational performance on UK competitiveness, would be improved by greater accuracy, transparency and accountability in operational performance metrics. It has proposed an amendment to give the Treasury powers to require regulators to report specified operational performance metrics, with the Treasury Select Committee consulted on the metrics to be reported. Those could include the regulator’s performance against its secondary objective or its “have regard” for net zero targets, for example. I wanted to hear what the Minister thinks about those proposals.
Dame Angela Eagle
As a member of the Treasury Select Committee and—for an all too brief time—acting Chair, I am also very interested to hear what the Minister has to say about this.
Andrew Griffith
Clause 44 closely relates to clauses 27 and 28, which the Committee has already considered. As we have discussed, clause 27 covers requirements for regulators to review their rules so that they remain fit for purpose, while clause 28 enables the Government to place an obligation on the regulators to make rules in certain areas. Clause 44 applies these same mechanisms to the Bank of England, in respect of its regulation of central counterparties and central securities depositories.
The clause introduces a new section of FSMA, which places a requirement on the Bank to ensure that the rules are reviewed regularly after implementation, to confirm that they remain appropriate and continue to have the desired effect. New section 300J of FSMA, which the clause will introduce, requires the Bank to publish a statement of policy for how it conducts rule reviews.
As the Bank takes on increased responsibility, there may be occasions when the Treasury considers that it is in the public interest for the Bank to review its rules, in the same way that we discussed earlier in relation to the PRA and FCA. Therefore, the clause introduces new section 300K of FSMA, which provides a mechanism for the Treasury to direct the Bank to review its rules. New section 300L of FSMA requires the Bank to report the outcome of the review and requires the Treasury to lay this report in Parliament. As with the corresponding measures for the PRA and the FCA, the Government consider that this offers a new avenue for challenge of the Bank’s rule making where required, while maintaining its operational independence. The clause 44 also places conditions on the Treasury’s exercise of the power, so that it will direct the Bank to review its rules only where it considers it to be in the public interest.
As discussed when the Committee considered clause 28, it is right that, in the context of increased responsibilities, the Treasury should have the ability to require the making of rules in certain areas of financial services regulation. This is equally true of the Bank in regard to its regulation of CCPs and CSDs. The clause therefore introduces new section 300M of FSMA, which enables the Treasury to place an obligation on the Bank to make rules in a certain area. The use of this power will be subject to the affirmative procedure in Parliament. The power does not enable the Government to tell the Bank what its rules should be; it simply enables the Government to say that there should be rules, with the agreement of Parliament.
The clause ensures that the same enhancements to the FSMA model that we have discussed will apply to the Bank as it regulates CCPs and CSDs. These are important tools to ensure that the Bank’s rules are relevant and appropriate. I therefore commend the clause to the Committee.
Tulip Siddiq
We support the clause, which will empower the Treasury to require the Bank of England to carry out a review of a specific rule, but let me ask the Minister again: does he not agree that such a mechanism is sufficient to highlight to the Bank of England where the Treasury believes a rule may not be working in the public interest and therefore requires a rethink? Surely the provisions under clause 44, and elsewhere in the Bill, provide the Treasury with sufficient powers to hold the Bank of England, the PRA and the FCA to account. Why is an intervention power necessary?
Numerous City stakeholders have written to us to warn of the dangers of such a measure. For example, Barclays stated in its written evidence that
“historically the UK has benefited from a global reputation for having a strong, stable and predictable regulatory framework, developed by effective institutions with clear roles and responsibilities. It is critical to ensure any new intervention powers do not risk or undermine this reputation.”
The Minister was there when Martin Taylor told us that the proposed intervention power had a “bad smell”. The Bank of England has warned that it could diminish the independence of our regulators in the eyes of the global markets. If the financial services sector is sceptical of an intervention power, and experts at the Bank of England have given powerful warnings of the risks of introducing such a power, why is the Minister even contemplating such a provision?
Andrew Griffith
I do not wish to detain the Committee further with a repetition of these points. The hon. Lady makes her points in a lucid fashion, but the Government simply disagree. It is appropriate for us to have laid out in statute the relevant responsibilities, both for the Treasury and for regulators. We are giving the regulators, including the Bank of England in this respect, vast areas of additional responsibility. There were previously intervention powers, which sat at the Brussels level. We are now repatriating those to create a rulebook that is appropriate for the United Kingdom.
The hon. Lady cites selectively, if I may say so, from the evidence that the Committee heard. If she engages widely with industry—as I know she does—she will hear other voices that talk about the need for us to have an agile and flexible system. As part of that, it is sometimes appropriate for us to direct.
Tulip Siddiq
I will not detain the Committee too long. The Minister keeps referring to the industry, which he seems to suggest is supportive of the intervention power, but no one has seen it. Has he consulted the industry? Everyone I have spoken to has said that they have not seen the details of the intervention power, so how does he know they support it?
Andrew Griffith
The hon. Lady makes a very good point, but how does she know that she opposes it? I suggest we come back to this debate another day, when I hope to fulfil my commitment to bring the intervention power in front of the Committee.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Financial Services and Markets Bill (Seventh sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill (Seventh sitting)
Tulip Siddiq ExcerptsTuesday 1st November 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
The Economic Secretary to the Treasury (Andrew Griffith)
Good morning, Mr Sharma. It is a pleasure to serve under your chairmanship.
If it pleases the Committee, I would like to draw the Committee’s attention to a letter that I have written to you, Mr Sharma, and to the interim Chair of the Treasury Committee. I had previously undertaken that it was my intention to table for the consideration of the Committee some draft wording on a public interest intervention power. As a result of the new Prime Minister wishing to understand what is an important matter in more detail, such that consideration can be given to points that have been made and to whether the proposed wording is the right wording, I regret that it will not be possible for us to table a proposal at this stage. There will be further consideration of the matter on Report and at other stages, and my commitment to write to the Treasury Committee, as well as to members of this Committee, as soon as we have draft wording for Members’ consideration, stands. I give that commitment to the hon. Member for Hampstead and Kilburn as well.
The clause introduces schedule 7, which sets out corresponding or similar provisions to those introduced for the Financial Conduct Authority and the Prudential Regulation Authority in chapter 3 of the Bill, relating to the accountability of the payment systems regulator. As the Committee is aware, the Bill repeals retained EU law pertaining to financial services. That means that the regulators, including the Payment Systems Regulator, will generally be responsible for setting the direct regulatory requirements for supervised entities where those were previously contained in retained EU law.
As the Committee has already discussed in some detail, it is important that that increase in responsibility for the regulators is balanced with clear accountability, appropriate democratic input and transparent oversight. It is also important that the accountability measures are applied consistently across the regulators. Schedule 7 therefore makes provisions corresponding or similar to those in chapter 3 in a way that is relevant to and appropriate for the PSR.
The accountability provisions are applied to the PSR by amending the Financial Services (Banking Reform) Act 2013, which is the domestic legislation governing the PSR. The key distinction is that because the PSR makes rules via powers of direction, as opposed to having the rulebook like the FCA, the accountability requirements on rule making apply where the PSR imposes a generally applicable requirement. Those are the PSR’s equivalent for rule making. Overall, the provisions in the schedule apply the accountability measures in a relevant and appropriate way to the PSR’s legislative framework and regulatory remit. This will ensure consistency in the application of the accountability provisions across the financial services regulators.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under your chairmanship, Mr Sharma. I have just one question for the Minister. How does he foresee the Payment Systems Regulator’s new sustainable growth principles taking account of the UK’s net zero emissions target? How will that balance work in practice? Will the regulator be required to report against its performance?
Andrew Griffith
In substance, the Payment Systems Regulator, in the same way as the FCA, the Bank and the PRA, will have the target as one of its principles. It will be for the PSR to decide how it reports against that. These are ultimately decisions for the regulators themselves to put into practice. To the extent that I have more information at this stage, I will write to the hon. Lady with any clarity I can provide.
Question put and agreed to.
Clause 46 accordingly ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 47
Cash access services
Tulip Siddiq
I will speak to clause 47 and the various amendments tabled to it by my hon. Friend the Member for Mitcham and Morden and the hon. Member for Glenrothes, who cannot be here because of a personal commitment. I pay tribute to him and all the work he has done so far. While we sympathise with the principle behind amendments 41 and 42, we believe that the amendments tabled by my hon. Friend the Member for Mitcham and Morden would better achieve free cash access. Before I continue, I pay tribute to her for all her work on financial inclusion. She is not stopping her fight for justice, and she talked about this being a societal duty. She also has a ten-minute rule Bill that seeks to persuade the Government to give free internet access to children on free school meals. I pay tribute to her work.
We are delighted that after years of delay, the Government have brought forward some legislation to protect access to cash. The industry, particularly the major banks, should be applauded for coming together to help protect cash services at the end of last year, which put this legislation on a statutory footing. However, the delay in bringing forward the Bill has cut off whole sections of society from our economy, including millions of the most vulnerable, the poorest and older people, as my hon. Friend the Member for Mitcham and Morden pointed out. It has also damaged smaller businesses that rely on cash.
On top of this, almost 6,000 bank branches have closed since 2015 on this Government’s watch, and the Bill does nothing to protect essential face-to-face banking services, which the most vulnerable in our society depend on for financial advice and support. I know we are discussing new clauses 4 and 5 later, which will protect access to essential in-person banking services, so I will stay focused on cash for now, but I do not feel that we can have this debate without talking about face-to-face banking services, or the lack thereof.
It is inevitable that payment systems will continue to innovate, but a recent report from the RSA that I am sure the Minister is aware of found that 10 million people still depend on cash and that the pandemic, which saw an acceleration in the digitisation of payment systems, has made it increasingly difficult for many of us to pay for the goods and services we need—especially people from a lower socioeconomic background.
The Bill is a welcome step in guaranteeing access to cash, but clause 47 goes nowhere near far enough in ensuring that cash is available for those who depend on it. My hon. Friend the Member for Mitcham and Morden pointed out how so many people in her constituency—where I was born, I am proud to say—still rely on cash, especially free cash. The Bill makes no commitment to protect free access to cash. That is what we are worried about. That is why we support amendments 16, 17 and 18, as well as new clause 10, which were all tabled by my hon. Friend the Member for Mitcham and Morden. They would provide a guaranteed minimum provision of access to free cash.
Protecting free cash access has never been more important, as I am sure the Minister will agree. Data collected by the Post Office has shown that the use of cash in recent months has increased. As the cost of living crisis deepens, the poorest in society are increasingly turning to cash to manage their budgets on a week-by-week, often day-by-day basis. Data collected by the consumer group Which? found a notable decline in the provision of free-to-use ATMs in recent years.
In July 2022, there were around 12,000 fewer free-to-use ATMs in the UK than there were in August 2018. That is a decrease of nearly 24%. Does the Minister agree that forcing the poorest in society, who are increasingly reliant on cash, to pay for access to cash in the middle of the worst cost of living crisis on record risks further deepening financial exclusion in our country? Is this the kind of society we want to live in?
I am sure the Minister knows of Natalie Ceeney, chair of UK Finance’s Cash Action Group. During the Committee’s evidence session, she made it absolutely clear that the Government have a societal duty to ensure that the most vulnerable people in the UK have free access to cash.
Which? warned that if these clauses do not make it clear that they will protect free cash withdrawals and deposits, the entire objective of this part of the Bill will be undermined. Which? is right to stress the importance of free cash withdrawals and deposits. That is crucial to securing cash acceptance. There is little point in the most vulnerable having access to cash if they have nowhere to spend it. That is why Labour will support new clause 11, which would place a duty on the FCA to collect data on cash acceptance.
During her oral evidence, Natalie Ceeney also warned that we have to ensure that the Bill
“covers small businesses as well as consumers. Small businesses, typically…pay for their cash access.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 51-52, Q101.]
Increasingly, small business owners also have to travel long distances to deposit. That is a dangerous disincentive for them to accept cash. Natalie Ceeney also pointed to Sweden, where shops have largely stopped taking cash. If the UK wants to avoid a similar outcome, we must ensure that small businesses can deposit cash easily. That is why we will push new clause 12 to a vote. It would guarantee minimum provision of free cash access services for small businesses.
The Minister is likely to respond that we must wait for the Government’s access to cash policy statement. If he does, will he confirm when that statement will be published? Does he not agree that, if the Government are truly committed to protecting free access to cash services, there is no reason not to make protections for free access explicit in the Bill?
Andrew Griffith
I will speak first to clause 47, before turning to the many amendments and new clauses proposed by hon. Members.
Although the transition towards digital payments brings many opportunities, the Government’s view is that cash remains an essential payment mechanism for many, particularly those in vulnerable groups. I am particularly familiar with the work of Age UK in this respect. Protecting access to cash for those who rely on it is a priority for the Government, and clause 47 delivers on that.
The hon. Member for Mitcham and Morden highlighted not just her own concerns about the issue but, rather thoughtfully, those of all hon. Members, to which I should add mine as well.
Andrew Griffith
The hon. Lady is very good at anticipating what I would not say. Perhaps she is going to finish my sentence for me.
Tulip Siddiq
Well, we have certainly spent enough time together. “In due course” is very vague, as I am sure the Minister will agree. Can he not give us any sort of timeline? I have not had a straight answer to this question for a few months now—to be fair, I recognise that it was not him in that chair, but his predecessor.
Andrew Griffith
I am a big fan of taking one step at a time, and the step in front of us today is to pass clause 47 and put it on the statute book—to make that very significant advance in the statutory protection of access to cash. I look forward to continuing my tenure and engaging with the hon. Lady, and it seems appropriate for us to bring forward the policy statement very rapidly once Royal Assent has been achieved, taking this important topic step by step.
The hon. Member for Kingston upon Hull West and Hessle nodded vigorously at the obligations on the FCA to collect more data. I think that that is absolutely right. One challenge, as cash potentially diminishes over time, is to ensure that we nevertheless have the right and detailed datasets in order to continue to protect our constituents.
Siobhain McDonagh
I rise to support my amendments 19, 20 and 21, which are grounded in transparency and evidence, requiring the Financial Conduct Authority to collect and publish relevant data related to access to cash. Examples include enabling public bodies to request a review of the local community’s access to cash needs or to publish how they intend to define and assess the reasonable nature and extent of provision when meeting a determination of access to cash; making provision for the publication of that assessment; and outlining steps to be taken by relevant parties to address such a deficiency.
Currently, under the voluntary agreements put in place by the Cash Action Group to preserve access to cash, individuals or community groups can request a review of their access to cash where they consider it to be inadequate. Where unmet needs are identified, LINK can recommend the installation of a new cash access point. I must say that it is doing precisely that in my constituency, in Pollards Hill, so I am grateful to LINK and the Cash Action Group for their progress.
The amendments call for a similar ability for individuals or communities to request a review of local cash provision, irrespective of whether baseline geographic distances set in the Treasury’s policy statement are met. I argue that that should be enshrined in the Bill to give consumers confidence that their concerns in their local areas will be considered by the regulator. Whether for transparency, fairness or consumer confidence, it is vital that the legislation compels the FCA to publish both the criteria that will apply when determining whether a cash access point is required in a community and the assessment of a local community’s access to cash.
I hope that chimes with commitments made by the hon. Member for Vale of Clwyd on Second Reading, when he argued that assessments of the needs of communities should be transparently published and that there should be a formal process of appeal. Surely such an appeal is impossible unless the data is collected, understood and available. I hope that this uncontroversial call will have the support of hon. Members as we seek to strengthen access to cash for communities and individuals up and down the country.
Tulip Siddiq
I shall speak to schedule 8 and amendments 19, 20 and 21 together. We recognise that the Bill sets out an important, overarching framework to protect access to cash. However, many critical elements, such as the baseline geographic distances that will apply to withdrawal and deposit facilities and which are factors that the FCA will take into account when assessing a local area’s needs with regard to access to cash, will be set out in a policy statement to be published by the Treasury. That makes it impossible for members of this Committee, more widely, Members of Parliament to judge whether the Government’s proposals will deliver an adequate level of free access to cash services. That is why the organisation Which? and others have called on the Government to assess the significant gap by setting out, in Committee, the details of the draft policy statement, which will determine the proposed baseline distances between cash facilities.
As my hon. Friend the Member for Mitcham and Morden has said, we also want the Government to set out how local deficiency of free cash access will be assessed by the regulator and how local people can request an FCA review of their communities’ access to cash needs. That is why we will be supporting amendments 19, 20 and 21 today. If the Conservative party does not lend its support to the amendments, will the Minister set out how he will ensure that Parliament has adequate opportunity to scrutinise the Government’s draft policy statement before the Bill leaves the House of Commons?
Andrew Griffith
I shall speak first to amendments 19, 20 and 21, before turning to schedule 8. Amendments 19 and 20 seek to introduce requirements on the FCA in relation to how it will determine reasonable provision of cash access services and how it will assess and address local deficiencies in provision. I am grateful to the hon. Member for Mitcham and Morden for raising that important issue, and I recognise the strength of feeling expressed by many in the debate on Second Reading and here this morning. I reassure the hon. Member that the Treasury has considered the matter carefully, and will continue to consider it through its approach to a policy statement.
Andrew Griffith
In addition to ensuring reasonable provision of cash access services in the UK, it is vital that we have an effective, resilient and sustainable wholesale cash system to support continued access to cash.
The UK’s wholesale cash infrastructure is a system of cash centres that sort, store and distribute banknotes and coins. A decline in the transactional use of cash has put pressure on the business models of the existing wholesale cash networks. Over time, the industry is expected to transition to a smaller overall network.
Clause 48 and schedule 9 contain provisions to give new powers to the Bank of England to oversee the wholesale cash distribution industry by creating a two-level regime. First, it gives the Bank oversight over, and the ability to regulate, the market activities of the wholesale cash industry. That will ensure the effectiveness, sustainability, and resilience of the system. Secondly, it gives the Bank the ability to prudentially regulate a systemic entity in the market, should one form in the future, to manage risks to financial stability.
Schedule 9 enables the Treasury to make a wholesale cash oversight order, which specifies an entity as a recognised entity. That will set out whether an entity is recognised as having market significance only, or systemic significance. If a firm has market significance, it will be subject to the market oversight regime. If it is systemically significant, it will be subject to both the market oversight regime and the prudential regime.
The Treasury does not currently consider any entity to be systemic, but the provisions will ensure that the Treasury and the Bank can respond effectively to future changes in the market to manage risks to financial stability. It is expected that the industry will transition to a smaller overall network, potentially with fewer operators, in the coming years.
The powers given to the Bank under both parts include the ability to publish principles and codes of practice, gather information, give directions as required, make inspections and enforce the regime. Under the regime, the Bank can also collect fees, which must relate to a scale of fees approved by the Treasury. The Bank will seek to exercise its powers proportionately.
Schedule 9 also requires the Bank of England to prepare and publish a policy statement on its regulatory approach before exercising its powers under the legislation. The Bank will launch a consultation on that policy statement shortly. Once the regime is operational, the Bank is required to provide an annual report on the regime to the Treasury, which must be laid before Parliament.
In summary, clause 48 and schedule 9 are necessary to ensure that the wholesale cash industry remains effective, resilient and sustainable. The measures form part of the Government’s action to support the continued access to cash. I therefore recommend that clause 48 and schedule 9 stand part of the Bill.
Tulip Siddiq
We welcome clause 48, but I have two questions for the Minister. First, how will Parliament and industry be consulted on the scale of the fees placed on businesses by the Bank to cover the operation of the scheme, and on the penalties for non-compliance? Clause 48, as drafted, allows the Treasury to designate an entity as being subject to the Bank’s new prudential regimes for the wholesale cash industry, but how will the Government ensure that the Bank is adequately consulted on additions to the regime?
Andrew Griffith
The answer is that, in the normal way, the measures will be laid before Parliament. If there is any extra detail with which I can furnish the hon. Lady, I will write to her.
Question put and agreed to.
Clause 48 accordingly ordered to stand part of the Bill.
Schedule 9 agreed to.
Clause 49
Recognised bodies: senior managers and certification
Question proposed, That the clause stand part of the Bill.
Andrew Griffith
The clause introduces schedule 11, which expands the existing resolution regime for central counterparties, or CCPs. CCPs provide clearing services for large volumes of financial trading activity and are systemically important pieces of market infrastructure.
Resolution is the framework for managing the failure of systemic financial institutions. It provides the Bank of England, the UK’s resolution authority, with the tools required to manage the failure of a financial firm safely. If a CCP got into difficulty and could not continue to provide its clearing services, there could be serious consequences for financial markets, affecting financial stability and potential risks to public funds
Although the UK has an existing resolution regime for CCPs, introduced in 2014, a fuller and stronger set of powers will enable the Bank to take faster and more extensive action than it can now. Schedule 11 will therefore expand the existing CCP resolution regime, providing the Bank with a comprehensive set of tools and powers to protect financial stability and limit contagion within the financial sector. That includes powers to remove impediments to resolvability in a CCP before it gets into any difficulties, and the ability for the Bank to put a CCP into resolution before the CCP’s own recovery measures have been exhausted, if continued recovery actions would be likely to compromise financial stability.
The schedule gives the Bank the powers needed to impose losses on the CCP and its clearing members in the first instance of the very unlikely event of failure, thereby protecting public funds. It also enables the Bank to take control of a failing CCP to stabilise the CCP and ensure the continuity of critical clearing functions while it is in resolution.
By expanding the existing regime we are also ensuring that our regime reflects international standards, as set out by the Financial Stability Board. That will cement the UK’s reputation as a global leader in providing clearing services and further enhance confidence in the UK’s financial system. The provisions therefore demonstrate the Government’s ongoing commitment to high standards and effective stewardship of the UK’s financial services sector, so I recommend that clause 50 and schedule 11 stand part of the Bill.
I also commend amendments 9 to 15 and 24 to 31. They are technical amendments that will ensure that schedule 11 functions as intended, reflecting the original policy intent by rectifying drafting errors and ensuring the legislation is applied consistently across the UK.
Tulip Siddiq
Because of the volume of trades cleared through CCPs, the failure of one could pose risks to the stability of the financial system. We therefore welcome clause 50 and the Government’s various technical amendments. Does the Minister agree that, because of the high risk to the financial system that a failed CCP could pose, the expanded regime must be brought in as a priority? How long after the Bill has passed will the provision become law and the regime be implemented?
Andrew Griffith
I agree with the hon. Lady that, given the systemic importance, it is important to bring the regime into place as quickly as possible. It will be for the Bank to consult on that. I expect the Bank to do that shortly after Royal Assent and then bring forward the necessary measures to put it in place. I hope that is enough for the hon. Lady at this time. We want to see the implementation proceed as quickly as possible.
Question put and agreed to.
Clause 50 accordingly ordered to stand part of the Bill.
Schedule 11
Central counterparties
Amendments made: 9, in schedule 11, page 205, line 21, leave out “9A” and insert “9B”.
This amendment corrects a cross-reference so that the provision refers to paragraph 9B of Schedule 17A to the Financial Services and Markets Act 2000, which is inserted by clause 10 of the Bill.
Amendment 24, in schedule 11, page 228, line 22, leave out sub-paragraph (1) and insert—
“(1) This paragraph applies where the Bank uses one or more of the stabilisation options mentioned in paragraph 1(3) in respect of a CCP unless the CCP has ceased to be subject to the exercise of any stabilisation power mentioned in paragraph 1(4).”
This amendment widens the scope of paragraph 39 of Schedule 11, on shadow directors etc, by ensuring that it applies following the exercise of any of the Bank’s stabilisation options under Schedule 11, not just the powers in paragraph 38.
Amendment 25, in schedule 11, page 228, line 28, leave out
“, or as a temporary manager under paragraph 6,”.
This amendment is consequential on Amendment 27 and omits the reference to temporary managers as they will be included in the list of relevant persons in paragraph 39(3) under Amendment 27.
Amendment 26, in schedule 11, page 228, line 38, at end insert—
“(e) the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19));
(b) the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4));”.
This amendment ensures that the list of relevant enactments in paragraph 39(3) of Schedule 11 includes the relevant Northern Ireland legislation so that the position regarding shadow directors is consistent across the UK.
Amendment 27, in schedule 11, page 228, line 41, at end insert “, and
(c) a temporary manager appointed under paragraph 6 of this Schedule.”
This amendment ensures that the list of relevant persons in paragraph 39(3) of Schedule 11 includes temporary managers, for consistency with the bank resolution regime.
Amendment 28, in schedule 11, page 255, line 43, after “EMIR” insert
“where they have a contractual relationship as principal with the CCP”.
This amendment operates on paragraph (d) of the definition of “relevant person”, to limit that group of persons entitled to compensation to those who are direct creditors of the CCP.
Amendment 10, in schedule 11, page 256, line 16, leave out “or 29(3)” and insert “, 29(3), 66(2) or 73(2)”.
This amendment provides that the definition of “residual CCP” applies to properties transferred under paragraphs 66(2) and 73(2) of Schedule 11 (transfers subsequent to resolution instrument and transfers subsequent to share transfer to bridge CCP).
Amendment 29, in schedule 11, page 257, line 43, at end insert—
“(5) An obligation imposed on the residual CCP or a group company under sub-paragraph (2)(d) or (e) continues to apply despite the residual CCP or group company entering insolvency, and may not be disclaimed by a liquidator under section 178(2) of the Insolvency Act 1986 or Article 152(1) of the Insolvency (Northern Ireland) Order 1989.”
This amendment provides an equivalent provision to section 64(6) of the Banking Act 2009 (continuity obligations relating to property transfers), to ensure that certain obligations continue to apply despite the residual CCP or group company entering insolvency.
Amendment 11, in schedule 11, page 259, line 25, leave out
“CCP whose business has been transferred”
and insert “transferred CCP”.
This amendment provides the correct terminology in relation to share transfers, to which this provision relates.
Amendment 12, in schedule 11, page 259, line 26, leave out “property” and insert “share”.
This amendment provides the correct terminology in relation to share transfers, to which this provision relates.
Amendment 30, in schedule 11, page 260, line 19, at end insert—
“(5) An obligation imposed on the transferred CCP or a former group company under sub-paragraph (2)(b) or (c) continues to apply despite the transferred CCP or former group company entering insolvency, and may not be disclaimed by a liquidator under section 178(2) of the Insolvency Act 1986 or Article 152(1) of the Insolvency (Northern Ireland) Order 1989.”
This amendment provides an equivalent provision to section 67(6) of the Banking Act 2009 (continuity obligations relating to share transfers), to ensure that certain obligations continue to apply despite the residual CCP or former group company entering insolvency.
Amendment 13, in schedule 11, page 267, line 2, leave out “or onward” and insert “, onward, bridge or subsequent”.
This amendment is consequential on Amendment 14.
Amendment 14, in schedule 11, page 267, line 3, after “50,” insert “52, 66,”.
This amendment adds to the list of instruments in paragraph 105(6) to include instruments made under paragraphs 52 (bridge CCP: share transfers) and 66 (property transfer subsequent to resolution instrument).
Amendment 15, in schedule 11, page 267, line 5, leave out “or onward” and insert “, onward, bridge or subsequent”.
This amendment is consequential on Amendment 14.
Amendment 31, in schedule 11, page 299, line 30, at end insert—
“(g) the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19));
(b) the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)).”—(Andrew Griffith.)
This amendment ensures that the list of relevant enactments in paragraph 165(2) of Schedule 11 includes the relevant Northern Ireland legislation so that the relevant law can be applied consistently across the UK in the event of a resolution of a CCP.
Schedule 11, as amended, agreed to.
Clause 51
Insurers in financial difficulties
Question proposed, That the clause stand part of the Bill.
Andrew Griffith
The clauses contain a mix of substantive and technical amendments to FSMA, which lists the functions and responsibilities of the FCA and the PRA and requires them to perform them in line with their statutory objectives and principles. Clause 52 adds to that list the responsibilities conferred on the PRA and FCA by the Bill and any functions conferred on them by future regulations made under the Bill.
On clause 53, currently, except in a few specific circumstances, the FCA and the PRA cannot use their disciplinary powers against firms that committed misconduct when they were authorised if they cease to be authorised. That means that if a firm has committed misconduct while authorised, and that comes to light only once the firm has ceased to be authorised, the regulators cannot take disciplinary action. It also means that when an authorised firm is under investigation for misconduct, the regulators must sometimes choose to maintain the firm’s authorisation to preserve the ability to sanction it following the conclusion of the investigation. To address that, the clause will enable the FCA and the PRA to take action against unauthorised firms in relation to misconduct that occurred while they were authorised.
Clause 54 enables the regulators to impose conditions on new controllers of financial services firms when to do so would advance their statutory objectives. That fills a gap in the regime identified by the PRA and the Treasury Committee in its Greensill inquiry. It will give the regulators more flexibility to manage changes of control in a way that they consider appropriate with reference to their statutory objectives.
Clause 55 makes two minor technical changes to the legal framework governing the Financial Services Compensation Scheme. The Office for National Statistics reclassified the FSCS as a public financial auxiliary in 2020. To reflect that change and bring the FSCS in line with other public financial auxiliaries, clause 55 removes both the requirement for the FSCS to have an accounting officer and the Treasury’s power to require certain information in connection with accounts.
Clauses 56 and 57 are necessary to reflect the regulators’ additional rule-making responsibilities when retained EU law is repealed. Under the comprehensive FSMA model of regulation that the Bill enables, the direct regulatory requirements that apply to firms will generally be in regulators’ rulebooks rather than set out in legislation.
Clause 56 inserts proposed new section 141B to FSMA, giving the Treasury the power to make consequential changes to legislation to reflect changes to regulator rules. At the moment, domestic and EU legislation sometimes makes reference to regulator rules; the power will ensure that the legislative framework remains up to date and consistent if those rules change. It is a consequential power only.
Clause 57 enables the Treasury and regulators to make ambulatory references to regulator rules and domestic legislation respectively. That means that when the Treasury references regulator rules in secondary legislation, it can do so in such a way that the references will automatically update to refer to the current version of the rules whenever the regulator updates them, thereby ensuring that the regulator rulebooks and the legislation will remain consistent over time, without the need for constant amendments in response to respective changes.
Clause 58 allows the Treasury to amend and repeal provisions in part 9C of FSMA that were introduced by the Financial Services Act 2021, which dealt with the immediate post-Brexit priorities for financial services, including by implementing the latest Basel standards, while the wider approach to regulation was considered as part of the Government’s future regulatory framework review.
Sections 143C and 143D of FSMA create duties for the FCA to establish the investment firm’s prudential regime, and section 143G requires the FCA to have regard to certain matters when making rules as part of that regime. Those provisions will be replaced by the general approach to obligations and “have regards” that the Bill introduces, which the Committee has already considered. Clause 58 enables those sections to be amended to avoid duplication.
Clause 59 introduces small technical amendments to two provisions of FSMA that cover transitional arrangements. The amendments ensure that an existing power to make transitional arrangements under sections 426 and 427 of FSMA is updated to correctly refer to the current regulators—the FCA and the PRA—and is available to the Bank of England when it is acting as a FSMA regulator. I recommend that the clauses stand part of the Bill.
Tulip Siddiq
We welcome this series of technical clauses, but I have two questions for the Minister. First, will he set out what disciplinary action regulators could take under clause 53 against firms that are no longer authorised? Secondly, on clause 55, the Transparency Task Force has recommended the creation of a financial regulators’ supervisory council, which would have a number of roles, including appointing and overseeing the Financial Services Compensation Scheme, to ensure greater independence. If the Minister is aware of that proposal, what assessment has he made of it? If he is not, I would be happy to hear his thoughts about it after the sitting.
Andrew Griffith
I thank the hon. Lady for those points. The powers that the regulators will have in relation to formerly authorised firms will mirror those that they have in relation to authorised firms: they will have the full range of powers to seek information and to impose sanctions, remedies and conduct. The substantive purpose of the measures is to ensure that those powers are not extinguished at the moment a firm becomes unauthorised.
I am not familiar with the detail of the proposal for a financial supervisory board that the hon. Lady mentioned, but we have a good framework for the supervision of financial regulators. I and the Government will always be interested in any practical suggestions to enhance that without duplication and unnecessary obfuscation about where true responsibilities lie.
Question put and agreed to.
Clause 52 accordingly ordered to stand part of the Bill.
Clauses 53 to 59 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Financial Services and Markets Bill (Eighth sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill (Eighth sitting)
Tulip Siddiq ExcerptsTuesday 1st November 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
Andrew Griffith
Clause 62 enables and requires the Payment Systems Regulator to take action to improve the reimbursement of victims of authorised push payment scams, or APP scams as they are commonly known. APP scams occur when someone is tricked into sending their money to a fraudster. Almost 200,000 cases of these scams were recorded in 2021, with known losses to victims totalling £583 million. Sadly, fraudsters often target the most vulnerable people in our society.
Under the European regulatory system that we have inherited, there is no statutory or regulatory requirement for payment service providers to reimburse victims of these scams. We need to do better and we can do better for victims of fraud in the UK.
Although the creation of a voluntary industry reimbursement code has improved matters, reimbursement outcomes for victims have been inconsistent and only around half the money stolen is being reimbursed. As a result, many victims are left facing significant losses; in the worst cases, victims lose their life savings.
We recognise these issues and so clause 62 does two things. First, it removes legal barriers in retained EU law that currently prevent regulatory action by the PSR. That will finally enable the PSR to mandate reimbursement in any payment system under its supervision.
The PSR has the relevant expertise, powers and objectives to tackle this crucial issue. However, regulation 90 of the Payment Service Regulations 2017, which form part of retained EU law, prevents the PSR from using its powers to require reimbursement. Therefore, clause 62(11) amends regulation 90 of the 2017 regulations to remove the existing legislative barrier to regulatory action. That will enable the PSR to use its relevant powers in relation to APP scam reimbursement across any payment system designated for regulation by the PSR.
Secondly, clause 62 places a specific duty on the PSR to take action in relation to the faster payments service. This service is the main UK instant payment system and is currently the payment system within which the highest volume of APP fraud is committed. Therefore, action is needed in this regard as a priority.
Clause 62 places a duty on the PSR to consult on a draft of the regulatory requirement in relation to the faster payments service within two months of this legislation coming into force, and the PSR must impose the requirement within six months of the clause coming into force. In 2021, 97% of APP scams occurred across the faster payments service, because it is the UK’s main payment system for instant consumer-bank transfers. Therefore, by requiring the PSR to take action in relation to the faster payments service, the legislation will improve outcomes in the vast majority of APP scam cases.
As a result of the clause and subsequent regulatory action, consumers will be more consistently and comprehensively protected when they fall victim to an APP scam. This is a vital measure to ensure that customers are protected amid the growing threat posed by APP fraud.
I therefore recommend that the clause stand part of the Bill.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
Labour fully supports clause 62, which enhances protection for victims of authorised push payment schemes, but we are deeply disappointed that the Bill does nothing to strengthen fraud prevention.
When asked about fraud in February, the former Chancellor, the right hon. Member for Spelthorne (Kwasi Kwarteng), claimed that fraud and scams are not something that
“people experience in their daily lives”,
which is tone-deaf. Essentially, he dismissed crime as inconsequential. In the real world, countless lives have been destroyed by fraud and scams, and I am sure the Minister will have examples from constituents in his inbox. There is a new Chancellor now, but the lack of ambition in this Bill on fraud shows that the Government’s approach to fraud remains the same. We will debate my new clause 6 on broader strategies for tackling fraud later, but I want to focus on the inadequacies of the provisions in clause 62.
UK Finance has estimated that the amount of money stolen directly from the bank accounts of hard-working families and businesses through fraud and scams has hit a record high of £1.3 billion. That is bad at the best of times, but it is even worse in the midst of a deepening cost of living crisis. That is because the Government have failed to get to grips with new types of fraud, such as identity theft and online scams, which have seen people’s life savings stolen and their economic security put at risk. I ask the Minister to explain why his Government continue to fail to take fraud seriously and continue to push responsibility on to just the banks. For example, the Bill ignores the fact that digitally savvy criminals are increasingly exploiting a range of financial institutions, such as payment system operators, electric money institutions and crypto asset firms, to scam the public.
In its written evidence to the Committee, Santander UK stated:
“Bringing crypto-exchanges into the scope of the Payment Systems Regulator’s powers to mandate reimbursement for APP fraud would be consistent with the principle of ‘same risk, same regulation’ and would introduce important new protections for consumers in area where risk of fraud is significant.”
I ask the Minister to explain why clause 62 completely ignores the emerging fraud and scam risk that EMIs and crypto asset firms pose to the public. What is his response to Santander’s evidence? Barclays similarly asked for clause 62 to be amended to expand the reimbursement protections beyond faster payments scheme payments to cover payments made over other relevant payment schemes or systems. Will the Minister explain why the Bill provides only for the reimbursement of fraud victims who send money using the faster payments system and why other payment systems have not been included in the scope of the Bill?
Emma Hardy
In reading the written evidence, there was an interesting cautionary tale from Mobile UK about how the banks introduced two-factor authentication through SMS without speaking to it. It found that fraudsters had worked out that they could get a one-time code by having a duplicate SIM card and intercepting the code sent from the bank, which immediately made me slightly worried about using two-factor authentication text message schemes. Mobile UK was able to find a way around that, but it highlights the need to involve as many stakeholders as possible when looking at fraud.
Mobile UK’s evidence was damning. Its conclusion stated:
“The mobile sector is committed to fighting fraud; the banking sector is clearly also committed, but, from the fraudsters point of view, this is a very low risk crime, as the chances of being pursued are very slim. This has to change.”
I recognise that some of these points are outside the scope of the Bill, as they would involve policing, investment and national crime agencies, but there are lots more things that could be done in the Bill to deal with fraud.
In its written evidence, Barclays said it welcomed that all payments made over FPS are covered by the new protection, but that it
“would note there are other relevant commonly used payment schemes and systems that should benefit from the same protection—for example, the CHAPs payment scheme, and ‘on us’ payments… The Bill should therefore be amended to give the PSR power to require participants in other payment schemes to reimburse scam victims.”
That seems to be incredibly sensible advice from Barclays.
It was echoed in the evidence given by Which?:
“to avoid gaps in protections the PSR should also be required to work with other regulators to introduce reimbursement requirements, including for payments made between accounts held with the same bank or payment provider (which are regulated by the FCA) and for the CHAPs payment system used for high-value transactions”.
That is exactly the same as what Barclays said.
There seems to be a lot of consensus among consumer representative groups such as Which? and in the banking sector about broadening out the provisions, looking at other ways in which fraudsters are working, and dealing with the issues raised by Mobile UK. At the moment, the people who are committing these frauds seem to be getting away with it.
Tulip Siddiq
UK Finance found that fraud has hit a new high under this Government. Is the Minister going to blame the EU, once again, for that record high? Would he like me to send him the UK Finance report?
Andrew Griffith
I am sorely tempted, but I will resist the urge to rise to that.
If my officials can find the report to which the hon. Member for Wallasey refers, I will look at it, and outwith the Bill, I will ensure that our efforts are equal to the task. I accept that fraud is rising, and in particular that this level of fraud is rising. That is facilitated by both online technology—there are other measures outwith the Bill to tackle and police the unregulated online world—and, as we heard earlier, the shift from cash, which suffered from its own forms of fraud and theft, into a more digital world.
Andrew Griffith
I can confirm to the Committee that, because the measure relates to all payment systems that fall within the remit of the Payment Systems Regulator, the measure is not confined solely to fast payment. Fast payment makes up about 97% of reported fraud—those are UK Finance figures—so of course it makes sense for it to be the first in our sights, but the clause will follow fraud and payment systems as they evolve. That is its whole purpose. It is not confined simply to the faster payment system. If that is the understanding that Barclays and Which? have, we should correct it, because any of the PSR-designated platforms are in scope.
Tulip Siddiq
The Bill provides for the reimbursement of fraud victims who send money using the faster payment system. Is the Minister saying that other payment systems are included in the scope of the Bill?
Andrew Griffith
Yes. If that is not correct, I will write to members of the Committee, but my understanding is that all the measures that we have been talking about cover the scope of the Payment Systems Regulator.
Question put and agreed to.
Clause 62 accordingly ordered to stand part of the Bill.
Clause 63
Credit unions
Question proposed, That the clause stand part of the Bill.
Andrew Griffith
The Government are a strong supporter of the mutuals sector, and recognise the unique role that credit unions play in their communities. Clause 63 introduces schedule 14, which makes amendments to the Credit Unions Act 1979—a particularly good year—to allow credit unions in Great Britain to offer a wider range of products and services, thereby supporting the growth, diversification and development of the sector.
The Credit Unions Act 1979 sets out the regulatory framework for credit unions and specifies the products and services that they can provide. Schedule 14 adds proposed new subsection (3ZZA) to section 1 of the Act, introducing a new optional object, or objective, for credit unions, which specifies additional products and services that they may now choose to offer. The services included are hire purchase agreements, conditional sale agreements, and insurance distribution services. When the Association of British Credit Unions Ltd consulted the sector in 2019, those were the additional products and services that credit unions wanted to be able to offer their members. In order to offer those additional products and services, credit unions must obtain permission from the Prudential Regulation Authority or the Financial Conduct Authority in the same way as other providers, and of course secure approval from their members.
Schedule 14 also grants the Treasury a power to add further products or services to the new object via a statutory instrument. That will ensure that the Government can continue to support credit unions in Great Britain to expand into other areas. The schedule also adds proposed new section 11E to the 1979 Act, which makes provision in relation to those new products and services. It caps the interest that a credit union can charge on hire purchase agreements and conditional sale agreements at 3% per month. That cap already applies to loans offered by credit unions.
The schedule gives the Government the power to amend the cap in the future via secondary legislation. The Government already have that power in relation to other credit union products and services. It allows the cap to keep pace with changes in the economic environment and allows credit unions to offer hire purchase agreements, or conditional sale agreements, to corporate members, subject to member agreement. The aggregate outstanding balance that can be owed to corporate members is capped at 10% of a credit union’s total aggregate balance under those agreements.
The Bill also makes provision for a credit union’s ability to lend to and borrow from other credit unions. Section 11 of the 1979 Act will be amended to clarify that credit unions may offer loans to other credit unions, regardless of whether they have a membership link. That will further support the growth, diversification and development of the sector.
The Bill introduces a requirement for credit unions to submit annual returns to the FCA, and to be subject to the “year of account” provisions in the Co-operative and Community Benefit Societies Act 2014. Those amendments will ensure greater regulatory oversight and support good corporate governance practices. Together, clause 63 and schedule 14 will support the credit union sector to grow sustainably for years to come, and help them to expand their reach as providers of affordable credit. I therefore recommend that clause 63 and schedule 14 stand part of the Bill.
Tulip Siddiq
Clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wide range of products. However, I do not think the Bill does much to address the outdated regulatory regime facing credit unions as a whole. We will discuss Labour’s proposals to address that, and the barriers facing the wider co-operative and mutual financial services sector, when we debate new clauses 7 and 8.
However, for now, I will push the Minister on some of the areas where the Building Societies Association—and others—has called for bolder action in its written submission to the Committee. First, why do clause 63 and schedule 12 not relax the same-household requirements for family members? Secondly, why does the Bill fail to restrict access to the register of members, in line with best practice for the protection of members’ personal data?
Martin Docherty-Hughes
I agree with the official Opposition on clause 63. I must say, we have talked about 1979, but I would mention 1977, when the Dalmuir Credit Union was opened, and I was number 501 with a membership card, around the age of six, on the church hall stage.
I am very aware of the good works that credit unions such as Dalmuir, Dumbarton and Vale of Leven do in my constituency, and, I am sure, across other Members’ constituencies, but I share the concerns expressed by the official Opposition about the existing infrastructure. I hope that the Minister can say something to alleviate concerns about that existing framework—not only for credit unions but for other local banks, which have been diminished over the past couple of years—and about how the legislation helps to grow this sector of mutual financial support in local communities. We know our banks and post offices are closing, but the credit unions, especially, can be a good cause on which we can all agree.
Emma Hardy
As well as my campaign for financial inclusion, I am sure Members will have heard me talk about flooding. I have not tabled an amendment to the clause, but I might be minded to in order to have a further conversation in future.
The clause addresses reinsurance for acts of terrorism. Has the Minister explored looking at reinsurance for acts of flooding? We have the Flood Re scheme, as I am sure he is aware, but that only applied up to 2007 and properties built after that are not included, nor does it apply to businesses. With this welcome move to consider reinsurance for acts of terrorism, has the Minister thought about other aspects, specifically flooding?
Tulip Siddiq
We welcome clause 64. I support the principle of the Treasury guaranteeing support for reinsurance in the event of a terrorist attack, but how will the provisions in the clause ensure that the taxpayer is adequately protected from such risks? How will the Treasury hold any public sector body to account regarding the requirements in the clause? Will the Minister provide some detail on the role of the accounting officer, in terms of ensuring that public sector bodies have sufficient oversight of the requirements of the clause?
Andrew Griffith
On the point about flooding, that is simply outwith the scope of the Bill. The Flood Re scheme is the responsibility of the Department for Environment, Food and Rural Affairs, and it is not something that falls under this Bill or the Acts I have mentioned.
The role of the accounting officer is the same as colloquially accepted in any public body—the person responsible for maintaining financial records and owning that liability. The governance remains with the board of directors of the relevant body and the duty to the taxpayer is exactly the same as it would be. The clause effectively gives step-in rights or the power to direct in particular circumstances. It does not alter where the core cost and liability start and should remain.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Clause 65
Banking Act 2009: miscellaneous amendments
Question proposed, That the clause stand part of the Bill.
Andrew Griffith
First, I shall speak to new clause 13 and Government amendment 23, which appear in my name, before speaking to clauses 65 to 73 and Government amendments 5 to 8, which also appear in my name.
New clause 13 adds the chair of the Payment Systems Regulator to the board of the FCA. Since the PSR was established in 2014, the roles of the PSR chair and the FCA chair were performed by the same person. As a result, the PSR chair has always been on the FCA board. However, the FCA chair and the PSR chair roles will now be performed by separate individuals, following the appointment of Ashley Alder as the FCA chair in July 2022. The composition of the FCA board is set out in the Financial Services and Markets Act 2000, and the new clause adds the PSR chair to the FCA board. This will help continued effective co-operation between the FCA and the PSR. Government amendment 23 provides for those changes to come into effect two months after Royal Assent.
Clause 65 makes five minor but necessary technical amendments to the Banking Act 2009, to ensure that it continues to function as intended. Clause 66 sets out a small number of definitions to ensure that the provisions of the Bill are interpreted correctly.
Turning to clause 67, the Bill makes a number of changes to the matters that the regulators must consider when they consult on rules. In particular, the Bill introduces a new growth and international competitiveness objective and a new regulatory principle to consider the Government’s net zero target. The clause allows the regulators to fulfil their obligations to consider such matters in consultations that are published before the Bill receives Royal Assent. That means that the regulators can begin acting to meet all their new consultation obligations in this Bill as soon as they are ready to do so, avoiding any unnecessary delays to important regulatory reforms.
Government amendments 5, 6 and 7, which appear in my name, widen the effect of clause 67 to include any obligation to consult introduced by the Bill. That includes, for example, the obligation for the FCA and the PRA to consult their cost-benefit analysis panels.
Clause 68 provides for any expenditure incurred under the Bill to be paid out of money provided by Parliament in the usual way. Clause 69 empowers the Treasury to make consequential changes to other legislation, to ensure that the provisions in this Bill function effectively where they interact with existing legislation. The Treasury will be required to use the affirmative procedure to make consequential provisions that amend, repeal or revoke any provision of primary legislation. That will ensure that there is appropriate parliamentary scrutiny of the exercise of this power.
Clause 70 provides for powers delegated by the Bill to be exercised by statutory instrument. The clause also allows the Treasury to make regulations under this Bill that include ambulatory references to rules and other instruments. Government amendment 8 makes a technical change to clause 70 to ensure that the power to restate and modify saved legislation can rely on the power to make ambulatory references provided for by the clause.
Clauses 71 to 73 are technical in nature. Respectively, they set out the territorial extent of the Bill, when provisions in the Bill will come into force, and the short title of the Bill. I therefore recommend that clauses 65 to 73 stand part of the Bill, and commend Government amendments 5, 6, 7, 8 and 23 and new clause 13 to the Committee.
Tulip Siddiq
I will go through the clauses in this group and ask my questions in turn.
Clause 65 will give the Treasury powers to consider whether a payment system using digital settlement assets or a digital settlement asset service provider is likely to threaten financial stability and should therefore be considered for recognition. How will the Treasury consult the Bank of England when making such a decision? How will the Treasury ensure that the Bank has the expertise it needs to have effective oversight of the operators of a new digital settlement asset or recognised payment system?
I understand that clause 67 and associated Government amendments 5, 6 and 7 would mean that all consultation duties arising from the Bill can be met by consultations made before commencement. The Minister can correct me if my understanding is wrong, but will the Government ensure that this does not result in consultations becoming mere tick-box exercises, with no real impact on the design or implementation of the reforms?
We welcome new clause 13, which will enable better integration across the Payment Systems Regulator and the FCA. What does the Minister hope to achieve with this provision, and how will the FCA and the Payment Systems Regulator be held to account against it? I just want a bit more detail from the Minister on this clause. How will the Treasury guarantee that there are adequate safeguards in place to ensure that the chair of the Payment Systems Regulator does not influence FCA decisions where it may not be appropriate?
Finally, the Minister might not be aware of this, but there are rumours in the press that the Government were exploring merging the Payment Systems Regulator and the FCA. They might just be rumours, but that would be an absolute disaster for consumer protection, so will the Minister, if he has heard these rumours—or if he is the source of them—confirm that the Government have no plans to merge the regulators?
Andrew Griffith
I will write to the hon. Lady about digital settlement assets, in order to try and fully understand what she was pushing at with her question.
On clause 67 and the amendment, the propensity to consult in this space is extremely prevalent, because of the need and desire to get the practitioner and the consumer voice fully represented. Indeed, the hon. Lady and I could both spend a large proportion of our lives responding to the many consultations that are held. However, I have seen no evidence whatever that those consultations are merely tick-box exercises, and I can assure her that that is not the intention. I look forward to engaging with those consultations as we go through this, as they are a fundamental part of the regulatory structure.
On new clause 13 and the chair of the PSR being on the FCA board, I think the hon. Lady mostly welcomed that as an opportunity for the two regulators to work closely together. As I explained, that is de facto the status quo. To the extent that there were any conflicts, I would expect the responsibility to manage and police those conflicts to lie primarily with the chair of the board, as it would in any board. That said, I want a Payment Systems Regulator and a Financial Conduct Authority that work hand in hand, cheek by jowl. I do not anticipate many examples of where we would see conflicts. What we want is effective close working together, as more and more of the systemic risk in the financial system sits with payment service providers.
I have not seen rumours of a PSR and FCA merger. Of course, the PSR effectively emerged from the FCA. It is certainly not my intention to merge them, nor am I aware of any proposals to do so. If anything, by establishing the PSR chair as a separate body or separate person, those two organisations are actually become strong siblings rather than being forced together. That is my understanding.
Tulip Siddiq
The rumours were in the press and the sector was quite worried about it. I appreciate the Minister’s clarification of his position.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Clause 66 ordered to stand part of the Bill.
Clause 67
Pre-commencement consultation
Amendments made: 5, in clause 67, page 81, line 2, leave out “relevant”.
This amendment, read with Amendments 6 and 7, broadens the effect of clause 67 so that it applies to all consultation duties arising under the Bill rather than only those duties specifically mentioned in subsection (3) of that clause.
Amendment 6, in clause 67, page 81, line 7, leave out “relevant”.
See the explanatory statement for Amendment 5.
Amendment 7, in clause 67, page 81, line 9, leave out subsection (3).—(Andrew Griffith.)
See the explanatory statement for Amendment 5.
Clause 67, as amended, ordered to stand part of the Bill.
Clauses 68 and 69 ordered to stand part of the Bill.
Clause 70
Regulations
Amendment made: 8, in clause 70, page 82, line 17, at end insert
“, except so far as making provision by virtue of section 4(1)”.—(Andrew Griffith.)
This amendment ensures that clause 4(1) of the Bill (power to restate and modify saved legislation) is within the scope of clause 70 for the purpose of being able to rely on the powers in clause 70, when making regulations by virtue of clause 4(1).
Clause 70, as amended, ordered to stand part of the Bill.
Clause 71 ordered to stand part of the Bill.
Clause 72
Commencement
Amendment made: 23, in clause 72, page 82, line 35, at end insert—
“(aa) section (Chair of the Payment Systems Regulator as member of the FCA Board);”.—(Andrew Griffith.)
This amendment provides for NC13 to come into force two months after Royal Assent.
Clause 72, as amended, ordered to stand part of the Bill.
Clause 73 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Financial Services and Markets Bill (Ninth sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill (Ninth sitting)
Tulip Siddiq ExcerptsThursday 3rd November 2022
(1 year, 6 months ago)
Public Bill CommitteesRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under your chairmanship again, Mr Sharma. I start by paying tribute to my hon. Friend the Member for Walthamstow, as others have done, for tabling the new clause and for her relentless work in the House to highlight the risks that unsecured credit poses to the most vulnerable in society, including many of my constituents in Kilburn. I also pay tribute to her successful campaign for better regulation of payday loans and companies. I am sure everyone has heard her speak on that campaign in the Chamber at some point.
As my hon. Friend the Member for Kingston upon Hull and Hessle said, we are disappointed that the Bill has failed to address buy now, pay later regulation. For years, the Government have promised to regulate the sector, but have not done so, which has left millions of consumers without protection. I recognise that many of my constituents, particularly the young, value buy now, pay later products, because they allow people to pay for expensive products over time. However, the products can also result in debt building up quickly and easily. That is why it is so important that the sector is properly regulated, as my hon. Friend the Member for Mitcham and Morden outlined.
An investigation by the FCA, the Woolard review, which reported in February last year, found that many consumers simply do not know that buy now, pay later products are a form of credit, which means that some people do not consider the risks associated with taking out such products and may not look at the products as carefully as they might have done otherwise. That should be deeply concerning to all of us here, and it has left the most vulnerable, financially excluded people at risk of getting trapped in a cycle of debt. The review made it clear that there is an urgent need to regulate all buy now, pay later products.
We are almost two years on from the review and nothing has been done—no action has been taken. The Government’s consultation concluded in June, and this Bill was the perfect opportunity to bring forward provisions to regulate the sector. Will the Minister explain why the Government have chosen not to do so? It is not just consumers who are in desperate need of regulation. As shadow City Minister, I have engaged with the main players in the buy now, pay later sector in recent months. They too have called on the Government for proper regulation to provide certainty for businesses and to keep bad actors out of the market. I hope the Minister will explain why his Government have chosen to leave consumers unprotected and have ignored calls from the sector by failing to include this regulation in the Bill today.
The Economic Secretary to the Treasury (Andrew Griffith)
It is a pleasure to serve under your chairmanship, Mr Sharma. It is always a pleasure to follow the hon. Member for Hampstead and Kilburn. I would like to add my recognition for what the hon. Member for Walthamstow has achieved, particularly when it comes to payday loans.
The debate on this clause is not about the ends. Rather, it is about the means and the best way of proceeding from here to an end that, as we heard from my hon. Friend the Member for West Worcestershire, is common to both sides of the Committee. However, there is a difference. The Government will not be supporting this amendment. I want to make it clear that we are trying to find the best path on which to proceed, and we are trying to get this important area right.
The amendment would require the Treasury to make regulations to bring buy now, pay later products into regulation within 28 days of the Bill’s passage. I contend that that would be breakneck speed. I hear and understand the frustration of colleagues that the legislation has taken a certain amount of time to mature, but it is also an innovative product and something that provides real utility to millions of people. It is important that we get this right.
The challenge for us in bringing forward appropriate regulations in this domain is that we must ensure we give no succour to the greater evil of informal or illegal credit. As we look to regulate the credit market, we have to acknowledge that what we do not regulate creates a floor, beneath which nefarious providers operate—for example, those whom the hon. Member for Walthamstow has been vigilant in cracking down on.
I understand the desire to move at pace, but I do not accept that nothing has happened. The FCA has significantly moved the dial on this, although there is more to do. It is our contention that we should do it in a thoughtful way and by consulting with the sector, which is supportive of endeavours to bring forward the right amount of legislation.
We also acknowledge that to many people credit can be a valued lifeline. Like the hon. Member for West Dunbartonshire, I remember being sent to do the weekly grocery shop, and that shop provided credit of a buy now, pay later form. As a growing family, and particularly at certain moments of the year, we had a more-than-average amount of groceries. It was a real lifeline. It was a way to spread the cost in a measured way. We should recognise that we must be very careful of the unintended consequences.
The Chair
With this, it will be convenient to discuss new clause 5—Essential banking services access policy statement—
“(1) The Treasury must lay before the House of Commons an essential banking services access policy statement within six months of the passing of this Act.
(2) An ‘essential banking services access policy statement’ is a statement of the policies of His Majesty’s Government in relation to the provision of adequate levels of access to essential in-person banking services in the United Kingdom.
(3) ‘Essential in-person banking services’ include services which are delivered face-to-face, and may include those provided in banks, banking hubs, or other service models.
(4) The policies mentioned in sub-section (2) may include those which relate to—
(a) ensuring adequate availability of essential in-person banking services;
(b) ensuring adequate provision of support for online banking training and internet access, for the purposes of ensuring access to online banking; and
(c) expectations of maximum geographical distances service users should be expected to travel to access essential in-person banking services in rural areas.
(5) The FCA must have regard to the essential banking services access policy statement when fulfilling its functions.”
This new clause would require the Treasury to publish a policy statement setting out its policies in relation to the provision of essential in-person banking services, including policies relating to availability of essential in-person banking services, support for online banking, and maximum distances people can expect to travel to access services.
Tulip Siddiq
I would like to say from the outset that I will push new clauses 4 and 5 to the vote.
New clause 4 would require the Treasury and the FCA to conduct and publish a review of the community need for, and access to, essential in-person banking services, and enable the FCA to ensure that areas in need of such services receive them, and to make sure that banking services have a minimum level of access.
New clause 5 would require the Treasury to publish a policy statement setting out its policies in relation to the provision of essential in-person banking services, including policies relating to availability of such services, support for online banking and maximum distances that people can expect to travel to access banking services.
Of course Labour welcomes the fact that, after years and years, we finally have a Bill that introduces protection for access to cash. However, the Bill has some serious gaps that we are concerned about. We have already debated in a previous sitting the Government’s failure to guarantee free access to cash, but this Bill also does nothing to protect essential face-to-face banking services, which the most vulnerable people in our society depend on for financial advice and support.
Analysis published by the consumer group Which? found that almost half the UK’s bank branches have closed since 2015. That has cut off countless people from essential services. In its written evidence to us, Age UK called for the Bill to be amended to protect the in-person services that older people rely on, such as the facility to open a new account or apply for a loan, to ensure that banking services can meet their needs.
However, it is not just older people who struggle without support. Natalie Ceeney, chair of the Cash Action Group, who many Committee members will know, warned us at our evidence session of the significant overlap between those who rely on access to cash—around 10 million British adults—and those who need face-to-face support. She said that
“every time I meet a community, the debate goes very quickly from cash to banking. It all merges. The reason is we are talking about the same population.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 49, Q98.]
She is completely right: it is the most vulnerable, the poorer people in society and the older members of society, who depend on that extra face-to-face help, for instance in making or receiving payments, or dealing with a standing order. These are the people who will be left behind if this question about banking is left completely unaddressed. Nor should we forget those without the digital skills needed to bank online, people in rural areas with poor internet connection, or the growing number who cannot afford to pay for data or wi-fi as the cost of living crisis deepens.
As the FCA warned in its written evidence to us, the powers granted to the regulator by this Bill do not extend to the provision of wider banking services beyond cash access. That is why I hope the Minister will today commit to supporting new clauses 4 and 5, which will give the FCA the powers it needs to protect essential in-person banking services.
Just to be clear, Labour is not calling for banks to be prevented from closing branches that are no longer needed—far from it. Access to face-to-face services could be delivered through a shared banking hub or other models of community provision. We also recognise that banking systems will inevitably continue to innovate, which is a good thing. Online banking is a far more convenient way for people to make payments and manage their finances. However, we must ensure—indeed, as constituency MPs we have a duty to ensure—that the digital revolution does not further deepen financial exclusion in this country.
That would require protecting face-to-face services and putting in place a proper strategy for digital exclusion and inclusion. Banking hubs or other models of community provision must be part of that solution. These spaces have the potential to tackle digital exclusion through their dedicated staff, who can teach people how to bank online and provide internet access for those without it. I was delighted to hear this week’s announcement from the Cash Action Group that the sector will be launching additional banking hubs on a voluntary basis, but if we want to ensure that no one is left behind—the most vulnerable in our society—these services must be protected by legislation. I ask the Minister to support these two new clauses.
Siobhain McDonagh
I rise to support new clauses 4 and 5, which we know are supported by our constituents. No matter what kind of constituency we represent, whether it is wealthy, rural or urban, people are desperate for face-to-face services. Recently, in Mitcham town centre, Barclays and Halifax have closed. I stood outside both branches for a week during their opening hours, asking customers why they wanted face-to-face services and if they used online banking. In both cases, about 50% of customers had no access to online services, either because they did not know how to access them or were too frightened to use them because they were concerned about being scammed. That is an enormous concern, but it is completely rational and understandable, when we consider how many people are scammed.
This is about those quintessentially un-financial market issues of community and human contact. The closure of our banks and building societies is symptomatic of so much more—of our town centres being destroyed, of people feeling excluded from progress and the new society, and even of their feelings of loneliness. I am not suggesting that it is the banks’ job to resolve issues of loneliness, but we can talk about these issues as much as we like; people crave human contact to give them the confidence to use financial services and their bank accounts.
The branch staff do an enormous amount for our communities by protecting some of our most vulnerable constituents from doing things they really should not do, such as giving their life savings to people who they have never met who have offered to marry them. So much goes on in our banks and building societies, but it is only through the closure of banks in my town centre that I have understood what is really happening. Banks are retreating from branches on the high street but also from phone services. The number of banks that will allow people to do things by phone is reducing. Anyone here who has tried to contact their bank by phone knows that unless they have a significant amount of credit on their phone, they will not get through any time soon.
Tulip Siddiq
The Minister mentions the FCA, and I also want to take the chance to respond to the earlier comments by the hon. Member for Wimbledon. I am not endorsing a specific model—this is something to consider—but the proposed banking hub could work in exactly the same way as the current banking hub model, which is funded by the sector and regulated by the FCA, which also ensures that sites provide in-person services as well. If the Minister is willing to talk further on the provisions in the new clause—the hon. Member for Wimbledon was generous in suggesting that he would do so—I would be happy to explore banking hub models with him.
Andrew Griffith
There is a great deal of good evolution. I suspect that members on both sides of the Committee would say that it has come quite late in the process, but nevertheless there has been evolution in the banking hub solution—that dynamic, sector-led initiative—as well as the work of the Post Office, which offers in-person facilities for a wide range of, if not all, transactions. There may be a gradient of availability, but post offices that offer a certain range of services to deal with the most common and frequently made transactions are almost ubiquitous. The need to travel for more complex needs would not be an unsurprising feature in this market.
I welcome the initiatives developed by the Cash Action Group, Natalie Ceeney and UK Finance, and implemented by LINK, which are making the local assessments to determine where shared solutions are most appropriate. The industry has committed to shared bank hubs in 29 locations across the UK. Yesterday, it committed to a further four, in Luton, Surrey, Prestatyn, and Welling in south-east London. There is a good rate of change coming now, albeit from a low base.
The Government’s perspective is that while many people need and prefer to use in-person banking services, at this time it would not be proportionate to legislate to intervene in the market. Instead, we want to see the impact of closures understood, considered and mitigated wherever possible by the array of initiatives that have been put forward. I will continue to work with the sector, the FCA and other stakeholders from both sides—I mentioned some earlier—on this important issue.
Andrew Griffith
Ultimately, the banks are downstream of the widespread issue that is the change in consumer behaviour. We have heard both in evidence and in comments made in Committee that 86% of transactions are now digital. The use case of going to a bank branch has evolved rapidly in my lifetime and the lifetime of all Committee members. That is the ultimate macro issue that we are dealing with. Is that issue understood? I think it is.
Solutions could be brought to the table, in terms of both a greater toolkit for the FCA and greater prominence and scrutiny of the FCA as it uses the existing toolkit and the new powers in the Bill. There are also industry-led solutions, which having perhaps started slowly are increasing at greater pace. Proportionality is about giving those developing trends time to mature to see what models can be developed, while accepting the underlying need for action.
I therefore ask the hon. Member for Hampstead and Kilburn to withdraw the motion.
Tulip Siddiq
After listening to contributions from Members on both sides of the Committee, I would like to have a conversation with the Minister about the new clause. I will bring it back at a later stage, but for now I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 6
National strategy on financial fraud
“(1) The Treasury must lay before the House of Commons a national strategy for the purpose of detecting, preventing and investigating fraud and associated financial crime within six months of the passing of this Act.
(2) In preparing the strategy, the Treasury must consult—
(a) the Secretary of State for the Home Office,
(b) the National Economic Crime Centre,
(c) law enforcement bodies which the Treasury considers relevant to the strategy,
(d) relevant regulators,
(e) financial services stakeholders,
(f) digital platforms, telecommunications companies, financial technology companies, and social media companies.
(3) The strategy must include arrangements for a data-sharing agreement involving—
(a) relevant law enforcement agencies,
(b) relevant regulators,
(c) financial services stakeholders,
(d) telecommunications stakeholders, and
(e) technology-based communication platforms,
for the purposes of detecting, preventing and investigating fraud and associated financial crime and, in particular, tracking stolen money which may pass through mule bank accounts or platforms operated by other financial services stakeholders.
(4) In this section ‘fraud and associated financial crime’ includes, but is not limited to authorised push payment fraud, unauthorised facility takeover fraud, and online and offline identity fraud.
(5) In this section, ‘financial services stakeholders’ includes banks, building societies, credit unions, investment firms, Electric Money Institutions, virtual asset providers and exchanges, and payment system operators.”—(Tulip Siddiq.)
This new clause would require the Treasury to publish a national strategy for the detection, prevention and investigation of fraud and associated financial crime, after having consulted relevant stakeholders. The strategy must include arrangements for a data sharing agreement between law enforcement agencies, regulators and others to track stolen money.
Brought up, and read the First time.
Tulip Siddiq
I beg to move, That the clause be read a Second time.
We fully support the provisions in the Bill that enhance the protection for victims of authorised push payment scams, but we feel that an opportunity has been wasted to do something on fraud prevention. UK Finance, the financial services trade body, recently published data that revealed that the amount of money stolen directly from hard-working families and businesses’ bank accounts through fraud and scams hit a record high of £1.3 billion in 2021. That is bad enough at the best of times, but even worse during a cost of living crisis. We need to get to grips with new types of fraud such as identity theft and online scams, which have seen criminals get rich at the public’s expense, with people’s life savings stolen and their economic security put at risk.
The current approach to fraud will always leave law enforcement agencies one step behind the criminals, who are exploiting new financial technologies and bank accounts to steal and hide the public’s money. The Opposition want to see enforcement agencies given the powers that they need to crack down on digitally savvy criminals, and to track stolen money through payment system operators, electronic money institutions and cryptoasset firms. If the Government are serious about tackling fraud, they will support our new clause to allow regulators and enforcement agencies to pursue criminals and bring them to justice wherever they hide their stolen money, and to protect people’s financial security.
New clause 6 would put in place a single, dedicated national strategy to tackle fraud. It would deliver a co-ordinated, interagency response across the Treasury, the Home Office, the National Economic Crime Centre, law enforcement agencies, the major banks and wider partners in financial services, telecommunications and social media centres. It would put in place a data-sharing agreement to help investigators and the sector prevent fraud and track stolen money. That agreement would extend beyond the banks to include social media companies, fintechs, payment system operators and other platforms that are exploited by tech savvy criminals. That is important, because for too long, tackling fraud has been solely the banks’ responsibility. That approach is completely outdated.
Mike Haley, the chief executive of CIFAS, said in evidence to the Committee:
“Provisions that facilitate greater data and intelligence sharing, particularly on suspicions of fraud and financial crime, would have the biggest impact in helping to prevent this type of crime. It is a crime that is at scale and at speed in the online environment. To be able to share the mobile numbers that are being used, the devices and the IP addresses at speed across the whole of the environment—payment providers, fintechs and telcos—would be enormously powerful. This is a volume crime, and we need to have prevention at the core of any national strategy. That would have a massive positive impact.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 68, Q129.]
The new clause would facilitate that sharing. Does the Minister agree with Mike Haley? If so, will he commit the Government to introducing a fraud strategy with data sharing at its heart?
I am sure, because I have heard the Minister speak so many times in this Committee, that he will tell us to be patient; he will say that change is coming. However, the millions of people who have fallen—or will fall—victim to fraud cannot afford to be patient any more. We cannot drag our feet over this. Scams will continue to rise, and countless more lives will be destroyed or lost. We need to make sure that the outdated way of tackling fraud is challenged once and for all. I ask the Minister to support the new clause.
Dame Angela Eagle
It is a pleasure to talk about this extremely important issue. The Treasury Committee produced a long and detailed report on this issue, with a series of recommendations. I hope that the Government will work cross-departmentally to put those into effect. Data sharing certainly featured in our views in that inquiry.
It is hard to contemplate the size of the explosion in fraud, how little of it is captured, and how few of the perpetrators are brought to justice. That is partly because of the massive number of chances for fraudulent activity to be perpetrated, which have come with changes in access to banking and digital capacity. They range from push frauds, fraudulent emptying of bank accounts and credit card cloning, all the way through to the text messages that we all get regularly on our phones.
The text messages tell us, for example, that we have recently been near someone who has covid—the message is purportedly from the NHS—and we need to give them our banking details so we can pay £1.75 for access to a PCR test. We have all seen them. I am getting a load now on energy support—probably everyone is getting them—which say that the Government’s support for energy bills has to be applied for and that we have to give these people our banking details. These are very plausible texts, which many people fall for. There are phone calls as well, purportedly from the bank, and emails too. This is a sophisticated level of fraud that is psychologically very well organised.
Andrew Griffith
I would never want to be unworthy in the hon. Lady’s eyes, so I am distressed that my offer to build consensus about how the police could best deploy their resources has, at this first stage, been rebuffed.
I ask the hon. Member for Hampstead and Kilburn to withdraw the motion.
Tulip Siddiq
The Minister was doing so well and I was hoping we could go through this sitting without hearing the Conservatives say the word “woke” once, but unluckily that has now been crossed off my bingo sheet.
I will press the new clause to a vote, because I want to hold the Minister to account and ensure he does not push this commitment too far down the road, and because every person in the sector I have spoken to has stressed the importance of legislative change when it comes to data sharing.
Question put, That the clause be read a Second time.
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill
Tulip Siddiq ExcerptsWednesday 7th December 2022
(1 year, 5 months ago)
Commons ChamberRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 7 December 2022 - Clarification of Schedule 2 (Transitional amendments): Large print edition - (7 Dec 2022)
Mr Deputy Speaker (Mr Nigel Evans)
I am getting no indication that the Minister wants to comment on that, but the fact is that the Speaker has said time and again that he deprecates statements that should be made to the House first being made elsewhere, and I am sure the Minister will take that on board.
I call the shadow Minister.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
The Opposition support the Bill, particularly the new secondary objectives for regulators on international competitiveness and long-term growth. It is a welcome first step in supporting the City to take advantage of opportunities outside the EU, such as creating a welcoming environment for new financial technologies and incentivising financial services to increase investments in domestic industries through reform of solvency II.
We were delighted when, after much pressure from the Labour party, the Minister decided to drop his dangerous policy of the intervention power. Despite repeated warnings from the Bank of England, business and the Labour party that he should not be putting the UK’s international competitiveness at risk by threatening our system of regulatory independence, the current Minister pushed on and told me it was a good thing. In my eyeline, I can see the hon. Member for North East Bedfordshire (Richard Fuller), who, when he was the Economic Secretary to the Treasury, said to me on Second Reading that it was right for Ministers to be able to intervene in such a way.
Bim Afolami (Hitchin and Harpenden) (Con)
On regulatory independence, notwithstanding the particular call-in power the hon. Lady is describing, would she agree that it is important for the elected Government and this House to be able to set the direction in which regulators are meant to go, and that if the regulators are not going in that direction, this House and the Government should be able to correct the direction they are going in?
Tulip Siddiq
I support much of what the hon. Member says, and I will come on to that a little later in my speech, but the call-in power is very different from what he is describing. Time and again, we warned Ministers that this would be detrimental to our regulatory independence, and they did not listen. However, if the hon. Member listens carefully, he will hear, when I come on to the next page of my speech, that I will address the valid points he is making.
In Committee, when I pushed the current Minister on why this dangerous intervention power was necessary, he told me that voices in the industry had told him we needed an “agile and flexible system”, which he claimed could only be brought about by this intervention power. After all of this from the three Economic Secretaries I have shadowed in 10 months, who kept pushing this dangerous intervention power, strangely enough the Government then dropped the policy: I just received an opaque letter, which did not really offer any proper explanation for why this Government have had a change of heart. If you do not mind my saying so, Mr Deputy Speaker, I thought about when I got a text from my crush in the sixth form telling me there would be no second date, without his actually telling me face to face why he did not want to see me again. I do wonder why, but I say to the Minister that I am grateful that he listened to the Labour party and has dropped the dangerous intervention power. I only wish he had done it sooner, so we could have saved some unnecessary damage to our global reputation.
While the intervention power was wholly inappropriate, we recognise that the Bill facilitates an unprecedented transfer of responsibilities from retained EU law to the regulators, and this does require democratic accountability. That is why I am glad the Government have listened to the concerns raised by me and others in Committee and have introduced new clause 17, which will allow regulators to be held to account against key metrics.
I hope the Minister will be able to commit to supporting new clause 10, tabled by my hon. Friend the Member for Blaenau Gwent (Nick Smith), to further strengthen the democratic accountability of regulators.
I was absolutely delighted that the hon. Member for West Worcestershire (Harriett Baldwin) was following my speeches at the Labour party conference so closely, where again and again I made the case for a new form of regulated personalised guidance. She has tabled new clause 11, which would create the space to do that, and I hope the Government will support her new clause.
Mr Baron
I hope the hon. Lady’s ex-crush realises what he has missed, but may I briefly pick up the point about democratic accountability when it comes to supervision of the regulators? I suggest that those regulators need to heed the advice of the professional bodies working in the sector. I raise again the issue of investment trusts. We have the Association of Investment Companies and many others saying that key information documents—a well-intentioned but misguided legacy of misguided EU regulation—are actually assessing risk incorrectly, to the detriment of investors. They are saying that now, and the FCA has control, yet we do not seem to be doing much about it. We are not making much progress on this issue, and meanwhile investors are being misled. Would she agree that we need to listen to the trade bodies as well?
Tulip Siddiq
I always want to listen to experts such as the trade bodies. The hon. Member has a wealth of knowledge in this area, and I accept what he is saying. Overall, the Labour party agrees with a lot of the policies in this Bill, which is why we have given it our wholehearted support. There are some missed opportunities that we feel could have been taken, and I think we could have strengthened our attractiveness for investments, as he is saying—I will come on to that later in my speech. I take his point, which is well made, and I hope the Minister will listen and will respond to it in his summing up.
Turning to my own amendments, I am worried about the lack of ambition in the Bill on strengthening fraud prevention. My new clause 1 would introduce the first national fraud strategy and data sharing arrangement for a decade. The National Audit Office, in its recent report, said that the Government simply do not understand the full scale of the fraud epidemic, despite the NAO calling for rapid action over five years ago. That is a damning statement. UK Finance has found that the Government’s failure to act on the fraud strategy and data sharing has seen the amount of money stolen from hard-working families’ and businesses’ bank accounts through fraud and scams hit a record high of £1.3 billion.
Despite that, in Committee, the Minister urged me to withdraw my new clause on the matter. He told me to be patient, and he told me that there would be a fraud strategy before Christmas. Now he is saying there will be one early next year, but how can we trust him not to kick the can further down the road? So I will be holding the Minister to account. There are only 24 days left until the end of the year, and people whose lives have been ruined by fraudsters cannot afford to be patient any longer.
Following our debate in Committee, leaders from across the financial services sector told me that the Government’s approach of placing data sharing responsibilities on the banks alone was stuck in the last century and allows tech-savvy criminals to get rich at the public’s expense. My new clause would put in place a data sharing arrangement that extends beyond just the banks to include social media companies, crypto-asset firms, payment system operators and other platforms that are exploited by criminals. If the Minister does not listen to the Labour party, I hope he will listen to the National Audit Office, businesses and victims of fraud, and finally give enforcement agencies the powers they need to crack down on criminals by voting for our new clause today. I also hope the Government will support my new clauses 2 and 3 and new clause 7, tabled by my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh); because we have spent a substantial amount of time speaking about free access to cash I will not elaborate too much on that, but she has our full support.
Matt Rodda (Reading East) (Lab)
My hon. Friend is making an excellent speech. Does she agree that new clause 3, on access to banking, is particularly important? For many disabled and elderly people and others with mobility issues, and indeed for small businesses, access to banking as a whole, as well as access to cash, is hugely important; that has been very evident in my constituency.
Tulip Siddiq
My hon. Friend is a doughty champion for his constituents. I will speak about that later, but I feel that we politicians have a duty on this: even if there has been a decline in the number of people using cash, there is still a small group of vulnerable people who do so, and they risk being excluded if we do not save free access to cash and face-to-face banking services. We have a duty to our vulnerable constituents, disabled constituents and those from black and minority ethnic backgrounds who still rely on cash.
David Mundell
I fully understand what the hon. Lady is saying, but it is not a small number of people: it was estimated in 2019 that 8 million people across the United Kingdom would struggle without access to cash.
Tulip Siddiq
I thank the right hon. Gentleman for his intervention. I welcome the fact that the Government have finally announced that they will bring forward access-to-cash legislation, but this Bill does nothing to protect face-to-face banking or free access to cash, which is our main concern and is what the most vulnerable in our society depend on.
Since 2015, on this Government’s watch nearly half of the UK’s bank branches have closed. It is inevitable that banking systems will continue to innovate—no one is denying that—but the failure to protect these services risks leaving millions of people behind. My amendment would empower the Financial Conduct Authority to review communities’ needs for and access to essential in-person banking services. To be clear, I am not saying banks should be prevented from closing underused branches—far from it. I explained this thoroughly in Committee but will say it briefly again now: vital face-to-face services could be delivered through a variety of models, such as shared banking hubs, which are already being set up across the country to provide cash services.
In Committee, the Minister was again very persuasive and convinced me to withdraw my new clause. He said he accepted the underlying need for action and that solutions would be brought to the table. I believed him, but despite warnings from Age UK, Which? and the Access to Cash Action Group—which does fantastic work in this area—that vulnerable people are at risk of being cut off from the services they desperately rely on, the Government have completely failed to engage on this important issue, and this time I will not be making the same mistake: I will not withdraw my new clauses. The Government need to demonstrate they will not simply abandon those who are struggling to bank online.
Jonathan Edwards (Carmarthen East and Dinefwr) (Ind)
I want to pledge my support for new clauses 2 and 3. In my constituency we have lost 13 to 15 banks since 2015, and we are more or less wholly reliant now on the Post Office to provide financial services in large parts of north Carmarthenshire. Worryingly, the new deal starting next year only lasts until 2025, and if that were to break down for whatever reason, there would be real issues in many communities.
Tulip Siddiq
The hon. Gentleman is right that this is not just about bank branch closures; it is also about pressures in the Post Office. It is possible to provide some of the services through the Post Office, but we have a duty to preserve some of the banking hubs to ensure that the Post Office does not get overwhelmed. I am sure the hon. Gentleman has travelled around his constituency, and anybody who walks around their constituency will see the need for bank branches, banking hubs and post offices for our most vulnerable constituents. I am also surprised that the Bill has so little to say on financial inclusion more broadly, despite my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) flying the flag for financial inclusion with her brilliant amendments.
The co-operative and mutual sector also plays an important role in delivering financial inclusion. The Bill’s measures fall short of the Labour and Co-operative parties’ shared ambition to double the size of that sector in the UK. That is why I have tabled new clauses 4 and 5 requiring the regulators to report on how they have considered mutual and co-operative business models. In Committee, the Minister said that given that appropriate arrangements are already in place for regulators to report, that the FCA and Prudential Regulation Authority already produce well combed-through annual reports and that there is no deficiency in the level of engagement with the sector, such a measure is simply unnecessary. The sector was shocked by the Minister’s ill-informed response. It pointed to the FCA’s most recent annual report, published in July, where there is not one mention of the needs of co-operatives, mutuals, building societies or credit unions, while in the latest PRA annual report, building societies are just lumped in with standard banks. Every single business leader that I have spoken to, from Nationwide to the firms represented by the Building Societies Association, have called for the FCA and the PRA to report separately on these specific business models. Either the Minister believes he understands the needs of British mutuals and co-operatives better than the sector itself or he should support my amendments.
What is perhaps most striking, however, is how little the Bill has to say about green finance. Over a year ago, the present Prime Minister promised to make the UK the world’s first green financial centre, but on Monday the CBI warned that the Government are “going backwards” on building a greener economy. CBI director-general Tony Danker said firms need more action from Government on green finance. I therefore hope the Minister will support my new clause 6 requiring the Treasury to publish an updated green finance strategy with a clearly defined green taxonomy, as well as new clause 24 tabled by the right hon. Member for Epsom and Ewell (Chris Grayling) introducing greater protections against deforestation. The Minister has said he is going to produce such a strategy imminently, but we look forward to hearing a timeline, because we are now very suspicious of the word “imminently” and want to hear clear dates and times.
In Committee, the Minister and his Conservative colleagues seemed astounded when I said that the Government and Minister were complacent about green finance. They took such issue with that that I felt I had to provide some evidence in my speech as to why I said it. The Government’s own independent Green Technical Advisory Group told them last month that they had to send a rapid market signal or we would risk falling further behind Europe, which launched its taxonomy back in 2020. In 2020 the Government legislated through a statutory instrument for a legal deadline of 1 January 2023 for the UK to establish the first set of green taxonomy criteria. That is less than a month away, so can the Minister tell me whether he is going to meet his own legal deadline? He is welcome to intervene on me if he thinks he is going to meet it.
The highlight of the Committee stage was when I received an early birthday present from the Minister: he gave me a copy of the “Global Green Finance Index” to read, which I read from cover to cover. It is scintillating. I thank him for the interesting read, but has the Minister read his Government’s own policy document, “Greening Finance”? If not, I have a copy here for him. The report says that the country is committed to consulting on the UK’s green taxonomy in the first quarter of 2022. No one will disagree that we are well beyond the first quarter of 2022. The reason I used the word complacent is that we are dealing with a Government who have missed their own deadlines and their own targets on green finance. If that is not complacency in action on green finance, I do not know what is.
Vicky Ford (Chelmsford) (Con)
I want to talk about new clause 17, especially in relation to the insurance sector.
The insurance sector is extremely important in my constituency. Insurers and insurance brokers based in Chelmsford are responsible for about 3,000 jobs in my constituency. In addition, Chelmsford is a major commuter city and many more of my constituents commute into London to work in the insurance sector. It is also a very important sector to the UK. The entire UK insurance industry accounts for 4% of our national GDP. The sector brings in an estimated total tax contribution in the region of £16.1 billion, or 2.2% of UK Government tax receipts for 2020. To put it another way, the insurance sector’s tax paid the salaries of every single nurse in the NHS in 2020-21. It is a really important sector and we do not discuss it often enough.
Insurance is also a very international business. Insurers and brokers based in Chelmsford have parent companies in the US, Switzerland, Japan and Australia. All have chosen to be in the UK as a centre for investment, and more international investment means more highly paid jobs supporting not only the City of London but local economies such as those in my constituency and beyond. That investment is under threat. It faces competition from other jurisdictions and the amendments we are debating today will help to show new and existing investors that the UK is open for business. It is a highly competitive global trading environment and London must keep pace with other parts of the world—they want our business. London remains a world-leading speciality insurance market. Three quarters of business booked in the UK comes from outside the UK and London. It is an export-led market. It is not replicated anywhere else in the world.
London retains a lead role thanks to its historical prominence. However, its market share has stagnated in the past decade. The UK needs a renewed focus on competitiveness and growth, and the amendments we are discussing today will help to ensure clear accountability and transparency in how we do that. It is not a theoretical risk that we will lose business to other countries. We have already lost out on new markets, investment and opportunities. Singapore copied the UK’s insurance-linked securities regime, a new form of insurance and risk transfer product. It recognised the quality of the UK’s legislation that this Government introduced in 2017, but when it implemented the regime, the Singapore regulator took a proportionate regulatory approach and that has encouraged many more new entrants. Singapore has approved 18 ILS vehicles in less time than it took the UK to do five. In 2021 alone, the UK lost out on over $700 million of foreign investment in ILS to Singapore, because its regulator is more agile and more proportionate, even though it has the same legislation.
There are also problems in just getting the day-to-day work done. The Bill Committee heard evidence from industry about how the FCA is sometimes taking nine months to authorise a chief executive coming from overseas to operate in the UK. That is just not good enough. I have also been told that not a single new insurance company has been set up in the UK in the last 15 years. Surely that is a clear sign that the UK is risking its position as the world’s leading insurance centre? Businesses face vital choices about where they place capital, income and people. Regulation is a key part of that decision-making process. That is why it is so welcome that the Government are introducing the new secondary objective on international competitiveness and economic growth. It is crucial. This is not a call for a race to the bottom in regulation. High regulatory standards are a strength of the UK system, but regulators across the world, from Australia, Hong Kong, Japan, Malaysia, Singapore and the EU, are all required to consider international competitiveness, so we should do so, too.
I congratulate the Minister and his officials on their work to date, especially on new clause 17. It is a very welcome recognition from the Government that there is a cultural problem with the regulators, that action is needed on the part of the regulators to address key issues regarding their performance, and that the Government have a key role in holding the regulators’ feet to the fire. The new clause introduces a power over the regulators’ reporting requirements by providing a mechanism through which to direct information to be published, but it is unclear how and in what circumstances His Majesty’s Treasury would use the powers within it. Can the Minister therefore confirm whether he intends to seek a report on the new international competitiveness and growth objective as soon as possible, given that it is a critical new objective for the regulators? Can the Minister also confirm that, in future reporting of the international competitiveness objective, he and other Ministers will impress upon the regulators the need to consider metrics specific to competitiveness, not just domestic competition, and that that must include comparative analysis of our regulators’ performance against competitor jurisdictions, as well as analysis of product and service innovations taking place in key markets?
The new clauses tabled by my hon. Friend the Member for North East Bedfordshire (Richard Fuller) go further on proposing a clear reporting criteria for the regulators to follow and on delivering international competitiveness and the growth objective. That would enable Parliament—I am looking at the Chair of the Treasury Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin) here—to understand better how the regulators have been performing and the contribution they are making to facilitate our competitiveness and growth. In particular, new clauses 13 and 14 are designed to give the Government powers to require the publication of more performance metrics, including on new applications, authorised entities and persons. They already have some performance criteria, but the new clauses would extend that approach. It does not mean reinventing the wheel. Many are taken from the performance criteria of regulators in competitive jurisdictions. It would not compromise their independence, high standards, financial stability or consumer protection.
New clause 14 would add to the regulators’ authorisation key performance indicators outlined in the Financial Services and Markets Act 2000. It would require them to publish monitoring data related to the determination of authorisations. This is a real issue for many of those acting in financial services. It would reduce the compliance burden for firms that regularly need to give clear applications for approved individuals and would, in turn, promote the openness of the UK for highly skilled talent. I am nearly finished, Mr Deputy Speaker, but there are a few more I want to mention.
New clause 15 would require both the FCA and the PRA to publish an annual report setting out how they facilitated international competitiveness and growth against a range of data and analysis requirements. Instead of allowing the regulators to mark their own homework, it would enable Parliament to understand how the regulators are helping the UK to be more competitive and ensure that they undertake comparative analysis with other jurisdictions.
New clause 16 is targeted at achieving a more proportionate approach to wholesale and retail financial services. Although the regulators have a proportionality principle, it is clearly not working in practice. I have heard time and again from insurers in my Chelmsford constituency and others that the regulators have adopted a one-size-fits-all approach to regulations by treating all financial services, no matter the product or customer, as the same. This means that the regulators in insurance are spending time and effort on over-regulating sophisticated corporate entities with teams of professional advisers, which is really affecting their competitiveness. It would be much better for them to spend that time and effort on protecting individual retail customers, such as our constituents, when they are buying products online or on the high street. The wording of the new clause should be familiar to the Minister’s officials, because it is borrowed from the recommendation for a proportionality principle for all regulators, which was published in June of last year by the Government’s taskforce for innovation, growth and regulating reform.
Amendments 1 to 6 would ensure that the cost-benefit analysis panels are better equipped to undertake the necessary scrutiny of regulators’ work, and would ensure that they are independent from the regulators, that they can publish their recommendations, and that the regulators must respond to those recommendations. Again, this would mean that Parliament, industry and public see the data and avoid a situation in which the regulators are marking their own homework behind closed doors.
I understand that my hon. Friend the Member for North East Bedfordshire might not move the amendments, but they are all extremely serious. As I said, the industry makes such an important contribution to the tax income of this country and is key to funding our public services. It would be a tragedy to lose our international competitiveness and an industry that dates back to the Great Fire of London, so let us make sure that the Minister and the Treasury team can take the amendments into account.
Andrew Griffith
I again thank my hon. Friend, who did so much work on this Bill. It is absolutely right that the Government keep an open mind to new technologies, and my hon. Friend the Member for Devizes (Danny Kruger), who is always very thoughtful, talked about this, but we have to understand the risks. While the risks to consumers of scams in the crypto-space, among others, is extremely high and has been well telegraphed, when it comes to looking at different payment systems—with the power of distributed ledger technology to solve issues such as settlement to make our financial markets cleaner, faster and more efficient—it is absolutely right that the Government consider looking at that, and we will be looking to do more in that domain.
Tulip Siddiq
I thank the Minister for his response, and he is making encouraging noises about the forward strategy, which I look forward to seeing, but I have not yet heard him mention anything about data sharing. The fact is that frauds and scams have moved on from what they might have been in the past. Is he going to give some indication of whether there will be a data-sharing arrangement that goes beyond just banks and takes into account social media companies, crypto-asset firms and other platforms that criminals are exploiting, because our vulnerable constituents are falling prey to frauds and scams? It is no good just going back to the old ways on frauds and scams—I am sure he understands that—so could I hear a bit more about data sharing, please?
Andrew Griffith
He does indeed understand that. We are addressing legal challenges to data sharing in the Economic Crime and Corporate Transparency Bill, which will introduce provisions to protect firms from civil liability. As was discussed earlier, it is important to regulate the online world, which my colleagues in the Department for Digital, Culture, Media and Sport are doing in the Online Safety Bill.
Tulip Siddiq
Despite some of the disappointments in the Bill, which I have outlined to the Minister in great detail, the Opposition support this important piece of legislation, as he will know. It will enable the UK to tailor financial services regulation from insurance to fintech to meet the needs of our economy. At the risk of sounding like an Oscar-winning speech, there are a few people whom I need to thank as well. People will know that, in Opposition, we do not have a whole team of civil servants working behind us. I must thank Mark Hudson in my team, who has worked really hard to make sure that I understand each and every aspect of the Bill. I wish to thank TheCityUK and UK Finance for their help and the Finance Innovation Lab for its advice on the Bill.
I thank, too, Lloyds, Santander, Barclays, HSBC, NatWest and Starling for setting out the dangers posed by the new forms of fraud, and the Building Societies Association and Nationwide for their help with my mutuals and co-operatives amendments. I also thank the Association of British Insurers, Phoenix, the Investment Association, Hargreaves Lansdown and TISA for their help on green finance and personalised financial guidance.
I also want to say thank you to all the Conservative MPs who served on our Committee, which, I think the Minister will agree, was a very good Committee, as we got through quite a lot of detail. I thank my hon. Friends the Members for Blaydon (Liz Twist), for Wallasey (Dame Angela Eagle), for Kingston upon Hull West and Hessle (Emma Hardy) and for Mitcham and Morden (Siobhain McDonagh) for their support on the Public Bill Committee and for their co-operation as well.
Finally, in my 10 months as shadow Economic Secretary to the Treasury, I have shadowed three Economic Secretaries, all of whom were very helpful when it came to this Bill. Let me just mention them. They are: the right hon. Member for Salisbury (John Glen), who is not in his place right now, but who was very helpful when I first took on the role; the hon. Member for North East Bedfordshire (Richard Fuller), who is also not in his place; and, of course, the current Minister whom I thank. This is a complex and wide-ranging Bill. The Minister and I spent an enormous amount of time together, but I think he will know that Labour supports both this Bill, and the opportunities for the City to thrive after we leave EU regulations. I hope the Minister knows that, overall, I have enjoyed working with him.
Tulip Siddiq
Main Page: Tulip Siddiq (Labour - Hampstead and Kilburn)Department Debates - View all Tulip Siddiq's debates with the HM Treasury
Financial Services and Markets Bill
Tulip Siddiq ExcerptsMonday 26th June 2023
(10 months, 2 weeks ago)
Commons ChamberRead Full debate Financial Services and Markets Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Amendments as at 26 June 2023 - (26 Jun 2023)
Tulip Siddiq (Hampstead and Kilburn) (Lab)
I thank the Lords for their work in considering this important Bill. In particular, I thank Lord Tunnicliffe, Lord Livermore and Baroness Chapman, who led for the Opposition in the relevant debates. I also put on record my thanks to the Minister and his office for briefing me and my office in good time on the Government amendments.
The Labour Party supports the various amendments tabled by the Government in the other place; they represent an important step in supporting the City to take advantage of opportunities outside the EU, whether that is creating a welcoming environment for fintech or unlocking capital in the insurance industry for investment in infrastructure through the reform of Solvency II. In particular, we welcome Lords amendments 6, 11 and 16 to 25, which strengthen the accountability of the FCA and the PRA.
This Bill facilitates an unprecedented transfer of responsibilities and powers from retained EU law to the regulators. We recognise that in this new context it has never been more important that the FCA and the PRA are appropriately held to account by democratically elected politicians. That is why Lords amendments 16 to 23 are so important to ensure that Parliament can take full advantage of the expertise in the other place when assessing the effectiveness of regulators.
However, accountability cannot be left to Parliament alone. That is why we support the principle behind Lords amendment 11, which will require the regulators to set out the process for how consumer groups and industry can make representation to review a rule that they believe is not working. We must ensure that regulation works for both consumers and the financial services sector. We also support Lords amendment 6, which will require the FCA and the PRA to report after 12 and 24 months on how they have complied with their duty to advance the secondary competitiveness and growth objective. However, as I am sure the Minister will agree, that new requirement must not detract from the regulator’s primary duties of promoting financial stability and consumer protection. As the banking turbulence of recent months has reminded us all, the success of the City depends on the UK’s reputation for strong regulatory standards.
I turn now to Lords amendments 72 to 77. I am delighted that, after months of voting against Labour’s amendments to protect free access to cash, the Government have finally U-turned. I congratulate in particular my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) on all her tireless campaigning on that topic. It was her determination that got us over the line.
If you will indulge me for a minute, Madam Deputy Speaker, I wish to send my condolences to my hon. Friend. I pay tribute to her sister, who was the first female secretary-general of the Labour party and an inspiration to many young women across the party.
Lords amendments 72 to 77 are especially important because they will ensure that millions of people across the country who rely on free access to cash will not be cut off from the goods and services that they need. However—the Minister will have anticipated this—I am disappointed that the amendments will do nothing to protect essential face-to-face services. Analysis published by consumer group Which? found that over half of the UK’s bank and building society branches have closed since January 2015—a shocking rate of about 54 closures each month—which risks excluding millions of people who rely on in-person services for help with opening new accounts, applying for loans, making or receiving payments, and standing orders.
Alison Thewliss (Glasgow Central) (SNP)
The hon. Lady is making an excellent point on bank closures. Even in urban constituencies such as mine, banking closures are forcing people into the city centre to get their cash. The Albert Drive branch in Pollokshields is the latest closure proposed by the Bank of Scotland. Does she agree that such closures are very difficult for many communities to bear?
Tulip Siddiq
It is a similar story across my constituency. A Labour Government would give the FCA the powers it needs to protect essential in-person banking services, which would help a lot of the constituents the hon. Lady is talking about.
To be clear to the Minister, Labour is not calling for banks to be prevented from closing branches that are no longer needed. We recognise that access to face-to-face services could and should be provided increasingly through banking hubs, be they delivered at the post office, in shared bank branches or by other models of community provision. But so far, only four hubs—I repeat: only four—have been delivered. [Interruption.] The Minister is indicating that there are six, which I do not think is a massive improvement, but I will take it. Six banking hubs have been delivered, about which he seems very proud. Figures from LINK reveal that only a further 52 hubs are in the pipeline. On top of that, many of those planned banking hubs will not even provide the essential in-person services that I am speaking about, so although we welcome the progress made in Lords amendments 72 to 77, there is a lot more to do to ensure that no one is left behind.
I am disappointed that the Government have decided not to back Lords amendment 10 on financial inclusion, for which my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) has been a powerful advocate. The amendment is an important opportunity to rethink fundamentally how financial resilience, inclusion and wellbeing issues are tackled in the UK, and to empower the FCA to confront issues such as the poverty premium—the extra costs that poorer people pay for essential services such as insurance, loans or credit cards.
Although I agree with the Minister that financial inclusion is a broader social policy issue, I do not believe that that is a legitimate argument for rejecting the Lords amendment fully. As the Treasury Committee found it its report last year:
“The regulations made by the FCA, and the manner in which it supervises and enforces those regulations, could have a significant impact on financial inclusion”,
such as restricting the practice of charging the poorest in society more for paying insurance in monthly instalments. That is why the Labour party will vote for Lords amendment 10.
Finally, I will address Lords amendment 5 on sustainability disclosure requirements, and the Government amendments tabled in lieu of Lords amendment 7 on expanding the regulatory principle on net zero emissions, and in lieu of Lords amendment 36 on forest risk commodities. We welcome once again that the Government have finally U-turned and acknowledged concerns that our regulatory system must play a role in protecting nature and ending deforestation. However, as I am sure the Minister will agree, that can only be the first step in ensuring that the transition to net zero and the protection of nature are primary considerations across the financial system. The Treasury’s review of deforestation must be meaningful and put forward concrete proposals. The Government cannot continue to kick the can down the road.
Similarly, although we welcome the new requirements in Lords amendment 5 for the FCA and PRA to have regard to the Treasury’s sustainability and disclosure requirements policy statement, we have been calling on the Government to move on that for months. Even now, the Government have yet to confirm the date on which the sustainability disclosure requirements will be introduced. We need clear timing and direction so that we give businesses the confidence to invest and do not undermine their certainty.
The Labour party will support the amendments. As I am sure the Minister knows, I will continue to hold him to account on his actions regarding green finance, financial inclusion and in-person banking services.
Dame Andrea Leadsom (South Northamptonshire) (Con)
May I start by sending my condolences to my fellow Treasury Committee member, the hon. Member for Mitcham and Morden (Siobhain McDonagh)? Her sister will be greatly missed by Members across all parties.
I am delighted at the Bill’s progress. I congratulate my hon. Friend the Minister on all his work in taking into account the views expressed across the House. Of course, the existence of the Bill is a huge Brexit dividend in itself, enabling us to deregulate while strengthening financial services in the UK, which is in the top two financial services sectors in the world and creates up to 2 million jobs right across the UK.
So far, the Treasury Committee has proven to be a good overview body for the financial services and markets regulation that is coming back to the UK. That Committee has done a great job, and I can say that without appearing to boast because I was not on the Committee when it did that scrutiny. We have done a good job, and the Treasury Committee will continue to be the right place to provide the scrutiny and checks and balances that will always be needed in the financial services sector.
I point out, however, that their lordships need carefully to consider their approach to the Bill. Far from enabling us to seize the opportunity and recapture the initiative, they seem to be trying to over-burden the regulators, pinning them down with reports and further obligations and duties that would militate against the UK continuing to be one of the most successful places on earth for financial services.