Bank of England and Financial Services Bill [HL]
Lord Ashton of Hyde
That this House do agree with the Commons in their Amendments 1 to 6.
“(b) the economy, efficiency and effectiveness with which a Bank company has used its resources in discharging its functions.”
““Bank company” means—
(a) a company which is a subsidiary undertaking of the Bank, within the meaning of section 1162 of the Companies Act 2006;
(b) a company not within paragraph (a) in respect of which a direction under section 7C(2) has effect;”
“( ) In the case of an examination under section 7D(1)(b), subsection (1) also applies to documents in the custody or under the control of—
(a) the company to which the examination relates;
(b) the auditor or auditors of that company.”
Lord Ashton of Hyde (Con)
My Lords, I beg to move that this House do agree with the Commons in their Amendments 1 to 6. In moving them, I shall speak also to Amendment 12.
In the other place, the Government made small changes to the provisions relating to the National Audit Office’s powers to carry out value-for-money studies of the Bank. As we have discussed in previous debates, these clauses deliver an important increase in the accountability of the Bank and its operations.
The NAO’s new powers are subject to a bespoke policy carve-out, designed to protect the independence of the Bank’s policy decisions. The Government have made two small but important technical changes to ensure that the NAO’s new powers are applied consistently across all areas of the Bank. These changes have been agreed by both the NAO and the Bank.
The original drafting of the Bill did not give the NAO the power to carry out value-for-money reviews of Bank subsidiaries unless they were indemnified by the Government. This was not the Government’s policy intention.
The first change ensures that the NAO is able to carry out value-for-money studies, not only of the Bank itself, but also of all the Bank’s subsidiaries, whether or not they are indemnified by the Government. The amended clauses will also allow the NAO to carry out value-for-money studies of any other company in which the Bank has an interest, but only if that company is indemnified by the Government.
The second change ensures that the policy carve-out applies consistently across all areas of the Bank. Under the previous drafting, the NAO’s powers to review the Bank’s indemnified subsidiaries and other companies came from the National Audit Act 1983. That means that its review of these companies would not be covered by the policy carve-out. The Government have amended the Bill to address this inconsistency.
On Amendment 12, the Government also made a small amendment to the clauses in the Bill relating to the Monetary Policy Committee. The Bill reduces the minimum frequency of MPC meetings from monthly meetings to “at least 8” meetings in every calendar year. The Warsh review assessed that this new timetable,
“strikes the balance between timeliness and probity”,
and brings the MPC into line with other leading central banks, including the US Federal Reserve and the European Central Bank. The amendment made in the other place adjusts the reporting requirements of the MPC to match the new meeting timetable. At the moment, it is required to submit a monthly report and so, without this change, the committee would be obliged to produce reports even when it has not had meetings.
I hope that noble Lords will agree that these are sensible changes, and I commend the amendments to the House.
Lord Higgins (Con)
My Lords, I had not realised until now that I am a wild enthusiast for a bespoke policy carve-out. The amendments reflect the considerable extended debates that we have had previously in your Lordships’ House, and I am very glad that they are now effectively implemented by the amendments that we have in front of us. There was a real problem with the relationship between the National Audit Office and the Bank of England. It is very fortunate that that seems to have been resolved now in a way that is satisfactory to both sides.
In a former incarnation, I was much involved in extending powers of the National Audit Office so that it did not merely act as an auditor but could look into the economy, efficiency and effectiveness of the bodies that it was investigating. I certainly think that there is a strong case for it including the Bank of England in its remit. To clarify one point on this, there are some aspects of the Bank’s operation that really need to be looked at. The present Governor of the Bank of England has taken to issuing forward guidance on interest rates, which I must say has not been an enormous success. Anyone who has followed that advice will almost certainly have lost money, depending on the precise timing. I think that he should consider very carefully whether it is an appropriate approach for the Bank to take—and perhaps the National Audit Office should do so, too.
I am not entirely clear what is covered by the expression “Bank company”. In particular, does it include the body—I have forgotten its name for a second—responsible for managing the enormous quantity of gilts purchased as a result of the quantitative easing operation? Will the National Audit Office have the power to inquire into how that very substantive—indeed, enormous—quantity of gilts is managed?
Overall, however, this is a very welcome change—and I am particularly glad that the Treasury is proposing to finance the operation. As it pointed out in the notes that come with the Bill, it should increase the likelihood of a value-for-money study being undertaken relative to the Bank of England. This change reflects the work that your Lordships did at earlier stages, and is very much to be welcomed.
Lord Davies of Oldham (Lab)
My Lords, we have come a considerable distance from what was in the original draft of the Bill that came before us on the role of the National Audit Office. Quite rightly, the Government have responded to the very strong opinion of this House that the proposals in the Bill were far from satisfactory, and we are grateful to them for the extent to which they have moved on these issues. This House played a significant role in identifying the real difficulties in their original Bill for the National Audit Office being remotely able to carry out its proper duty in assessing whether on all occasions the Bank of England was providing value for money.
The noble Lord, Lord Higgins, has moved across an important boundary in indicating that the NAO ought also to look at issues of policy regarding the Bank, which we know the Bank is resistant to. The Government still maintain that position, although we sought to press that here and my colleagues in the Commons were interested in the issue as well, not least if issues cropped up under freedom of information queries, where the role of the NAO in relation to the Bank would inevitably be limited under the proposal.
Nevertheless, the Government have moved a considerable distance on this matter. We are pleased to say that although not all our proposals, here and in the other place, were accepted by the Government, we nevertheless feel that significant progress has been made in that the NAO has been able to draw up with the Bank of England a memorandum of understanding on how these issues are to be tackled in future. We appreciate the fact that the Government have moved a considerable way from their original proposals to a much more satisfactory position, although I will listen with great interest to the Minister’s response to the noble Lord, Lord Higgins.
Lord Ashton of Hyde
My Lords, I am grateful to my noble friend Lord Higgins and the noble Lord, Lord Davies, for their comments and for their support for these amendments. My noble friend’s views on the governor’s role in giving forward views are well known; he has expressed them before in debate on the Bill. We have listened to his views but they are not specifically a part of this Bill. On the question of whether “Bank company” includes the asset purchase facility and therefore allows the NAO to make value-for-money reviews, the answer is yes. Amendment 3 is the amendment that deals with that.
I am glad that the noble Lord, Lord Davies, has acknowledged that we have been in listening mode and that we have moved. We are always happy to listen to sensible suggestions, and I am grateful for his acknowledgement of that.
Lord Bridges of Headley
Moved by
That this House do agree with the Commons in their Amendment 7.
“Appointment of Financial Conduct Authority chief executive
In Schedule 1ZA to the Financial Services and Markets Act 2000 (the Financial Conduct Authority), after paragraph 2 insert—
“2A(1) The term of office of a person appointed as chief executive under paragraph 2(2)(b) must not begin before—
(a) the person has, in connection with the appointment, appeared before the Treasury Committee of the House of Commons, or
(b) (if earlier) the end of the period of 3 months beginning with the day on which the appointment is made.
(2) Sub-paragraph (1) does not apply if the person is appointed as chief executive on an acting basis, pending a further appointment being made.
(3) The reference to the Treasury Committee of the House of Commons—
(a) if the name of that Committee is changed, is a reference to that Committee by its new name, and
(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable.
(4) Any question arising under sub-paragraph (3) is to be determined by the Speaker of the House of Commons.””
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I beg to move that this House do agree with the Commons in their Amendment 7—and on this, too, we have been in listening mode.
This amendment recognises the important role played by the Treasury Select Committee in its scrutiny of the Financial Conduct Authority and appointments to its top job. Through the committee’s programme of pre-commencement hearings it questions appointees to several posts before they start work. After appointees have started, as your Lordships will know, they appear regularly before the committee. The Government welcome this scrutiny of appointees.
Our amendment therefore ensures that the committee always has the chance to scrutinise a newly appointed chief executive of the Financial Conduct Authority before they start work. It provides that no one who is appointed as CEO of the FCA can start work until they have appeared before the TSC or three months have passed. This gives the TSC time to call them in, and once it has questioned the appointee in relation to the appointment, he or she can get to work. There is an exception to this if the appointment of a chief executive is made on an acting basis pending a further appointment; for example, where an appointment must be made urgently in response to a sudden vacancy. However, to appoint a permanent CEO, the Government must give the TSC the chance to hold a hearing.
As your Lordships will be aware, my right honourable friend the Chancellor and the chair of the Treasury Select Committee have reached an agreement that further reinforces the committee’s scrutiny role. This is set out in a letter from the Chancellor to the chair of the TSC, which has been published on the TSC’s website. It reads as follows:
“During the passage of the Bank of England and Financial Services Bill, we have considered the role of the Treasury Select Committee … in scrutinising the appointment of the Chief Executive of the Financial Conduct Authority … This scrutiny is important and welcome. I will therefore ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House. Additionally, I will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term. This would not apply to Andrew Bailey, who I recently announced as the new head of the FCA, but would first apply to his successor. I believe that these changes will reinforce the Treasury Committee’s important scrutiny role”.
This commitment, combined with this amendment, which ensures that the Treasury Committee always has the opportunity to hold a hearing with an appointee, serves as a strong recognition of the committee’s vital role in scrutinising the FCA and its CEO. I beg to move.
Lord Sharkey (LD)
My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.
Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.
To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.
The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,
“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,
as the Minister has said,
“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.
Secondly, the Chancellor,
“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.
This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.
There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?
We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.
Lord Higgins
My Lords, as a former chair of the Liaison Committee in the House of Commons, which co-ordinates the work of the Select Committee system, as well as having been chairman of the Treasury and Civil Service Select Committee, I very much welcome the proposals put forward by the Government. Of course, there are various qualifications, which have just been mentioned, but I believe that this is a significant step forward and that it will improve the way in which the appointments system works within overall government. Therefore, I think that this is an excellent amendment and I heartily support it.
Lord Flight (Con)
My Lords, as I understand it, the proposed arrangements effectively give the Treasury Select Committee a sort of negative veto after the event. Why could this not be more straightforward, with senior appointments such as the head of the FCA requiring the approval of the Treasury Select Committee up front?
Baroness Kramer (LD)
My Lords, perhaps I may pick up on the point made by the noble Lord, Lord Flight. The FCA is one regulator. We understand that there is great pressure to move on this issue now because the FCA had lost so much confidence and so many people have questioned whether it is genuinely an independent regulator. However, the PRA, turning into the PRC, is an equal, if not more critical, regulator of our banking system, and of course appointments to the Bank of England—particularly that of governor—are also crucial. Therefore, can the Government tell us why they have not broadened out this change in approach, which is surely just a modernisation and a recognition of the significant interest that Parliament and the country have in these appointments?
Lord Davies of Oldham
My Lords, after those contributions I can keep my own fairly short. However, like the noble Baroness, Lady Kramer, I would have thought that this change would have applied in the whole approach of this Government and would have been taken into account when the Bill was drafted. Not only have the Government had strong representations from the Official Opposition and the Liberal party—we debated this matter very vigorously in this House—but it is clear that the Treasury Select Committee had very strong views on this. Ministers are all too well aware of the fact that the Treasury Select Committee contains members of all parties, several of whom enjoy very high reputations indeed—not just the chairman, although he too deserves his high reputation. How is it, then, that the Government should have thought that they could ignore the proper position of the Select Committee in relation to this appointment?
Of course we welcome the sinner who repenteth, and the Minister, I have no doubt, will indicate in a moment how carefully he has considered all issues. But it does somewhat surprise me that it needed such a weight of parliamentary opinion, to say nothing of opinion from outside too, before the Government recognised that they could not possibly put forward this appointment without there being a substantial degree of parliamentary scrutiny.
Lord Bridges of Headley
My Lords, I am delighted to hear the overall approval and support for the principles and thrust behind this amendment. Let me begin with the points that the noble Lord, Lord Sharkey, made. He spoke of interference by the Executive, a point he has made before. I will not rehearse the arguments again that the Government made in response to that, but we refuted many of those at the time. In response to the point that this should be made statutory, I simply point out that the commitments we have made have been affirmed by the Chancellor in writing, as I said, and by Ministers in both Houses. As the chair of the Treasury Select Committee himself points out in his letter to the Chancellor, there are several different means, both statutory and, crucially, non-statutory, for bolstering Select Committee scrutiny of appointments. Indeed, non-statutory provisions are the norm. The Cabinet Office and the Liaison Committee keep a list of some 50 appointments subject to pre-appointment hearings with varying arrangements, and the vast majority of those are by agreement.
Moving on, the noble Lord asked when we will bring forward the changes to length of term to make it fixed for five years. We are seeking the earliest opportunity, and the House authorities confirmed that it was not in scope for this stage of the Bill. That is why it is not in this Bill.
My noble friend Lord Flight and the noble Baroness, Lady Kramer, also made a point that I know others have made and which has rumbled around for a long time: whether or not an arrangement such as this should be made for other appointments in government. I know that there is a divergence of views on whether this should be done. The Government have previously set out their concerns about appointments to these posts, such as the ones that have been cited, and will address these in fuller detail in their response to the Treasury Select Committee’s report, which will be published in due course.
As well as looking forward to that response, it is worth reminding your Lordships just how we got here—this picks up on the point that the noble Lord, Lord Davies, just made. We are indeed responding to points raised during the passage of this Bill specifically concerning the appointment of the chief executive of the FCA. That is why the Government’s amendment and the agreement reached between the Chancellor and the chair of the Treasury Select Committee are focused on this particular appointment. I would further argue that this amendment and this agreement sit within the context of a Bill that significantly strengthens the governance, transparency and accountability of the Bank of England. This includes enhancing the accountability of the Bank to Parliament by making the whole Bank subject, for the first time, to NAO value-for-money reviews. I fully understand that the points made by the noble Baroness, Lady Kramer, and my noble friend Lord Flight will continue to rumble on. I commend the amendment to the House.
Lord Bridges of Headley
That this House do agree with the Commons in their Amendment 8.
“Illegal money lending
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After Part 20A insert—
“PART 20B
ILLEGAL MONEY LENDING
333S Financial assistance for action against illegal money lending
(1) The Treasury may make grants or loans, or give any other form of financial assistance, to any person for the purpose of taking action against illegal money lending.
(2) Taking action against illegal money lending includes—
(a) investigating illegal money lending and offences connected with illegal money lending;
(b) prosecuting, or taking other enforcement action in respect of, illegal money lending and offences connected with illegal money lending;
(c) providing education, information and advice about illegal money lending, and providing support to victims of illegal money lending;
(d) undertaking or commissioning research into the effectiveness of activities of the kind described in paragraphs (a) to (c);
(e) providing advice, assistance and support (including financial support) to, and oversight of, persons engaged in activities of the kind described in paragraphs (a) to (c).
(3) A grant, loan or other form of financial assistance under subsection (1) may be made or given on such terms as the Treasury consider appropriate.
(4) “Illegal money lending” means carrying on a regulated activity
within Article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (regulated credit agreements) in circumstances which constitute an authorisation offence.
333T Funding of action against illegal money lending
(1) The Treasury must, from time to time, notify the FCA of the amount of the Treasury’s illegal money lending costs.
(2) The FCA must make rules requiring authorised persons, or any specified class of authorised person, to pay to the FCA specified amounts, or amounts calculated in a specified way, with a view to recovering the amount notified under subsection (1).
(3) The amounts to be paid under the rules may include a component to recover the expenses of the FCA in collecting the payments (“collection costs”).
(4) Before the FCA publishes a draft of the rules it must consult the Treasury.
(5) The rules may be made only with the consent of the Treasury.
(6) The Treasury may notify the FCA of matters that they will take into account when deciding whether or not to give consent for the purposes of subsection (5).
(7) The FCA must have regard to any matters notified under subsection (6) before publishing a draft of rules to be made under this section.
(8) The FCA must pay to the Treasury the amounts that it receives under rules made under this section apart from amounts in respect of its collection costs (which it may keep).
(9) The Treasury must pay into the Consolidated Fund the amounts received by them under subsection (8).
(10) In this section the “Treasury’s illegal money lending costs” means the expenses incurred, or expected to be incurred, by the Treasury—
(a) in connection with providing grants, loans, or other financial assistance to any person (under section 333S or otherwise) for the purpose of taking action against illegal money lending;
(b) in undertaking or commissioning research relating to taking action against illegal money lending.
(11) The Treasury may by regulations amend the definition of the “Treasury’s illegal money lending costs”.
(12) In this section “illegal money lending” and “taking action against illegal money lending” have the same meaning as in section 333S.”
(3) In section 138F (notification of rules), for “or 333R” substitute “, 333R or 333T”.
(4) In section 138I (consultation by FCA)—
(a) in subsection (6), after paragraph (cb) insert—
“(cc) section 333T;”;
(b) in subsection (10)(a), for “or 333R” substitute “, 333R or 333T”.
(5) In section 429(2) (regulations subject to affirmative procedure), for “or 333R” substitute “, 333R or 333T”.
(6) In paragraph 23 of Schedule 1ZA (FCA fees rules)—
(a) in sub-paragraph (1) for “and 333R” substitute “, 333R and 333T”;
(b) in sub-paragraph (2ZA)(b) for “section 333R” substitute “sections
333R and 333T”.”
Lord Bridges of Headley
My Lords, this amendment gives the Treasury a power to provide financial assistance to bodies for the purpose of taking action against illegal money lending. It also gives the FCA an obligation to raise a levy, which will apply to consumer credit firms, in order to fund this financial assistance.
Loan sharks prey on some of the most vulnerable people in society, cause untold misery to their victims and have a damaging impact on the communities in which they operate. As well as lending money illegally at high levels of interest without FCA authorisation, loan sharks frequently use blackmail, as well as violence, to intimidate their victims into repaying legally unenforceable debts.
Loan sharks are currently investigated and prosecuted by the England and Wales illegal money lending teams and the Scottish Illegal Money Lending Unit. The cost of the teams is around £4.7 million. While the FCA will consult on precisely how the levy will be apportioned and collected in its annual fees consultation, the cost of the new levy to individual firms in the £200 billion consumer credit market is anticipated to be small.
It is absolutely right that industry meets the modest costs of funding the teams—all participants in the consumer credit market benefit from their enforcement work. The teams ensure that the consumer credit market remains legitimate and credible by keeping illegal money lenders out of it. The amendment will ensure that the funding that the illegal money lending teams need to continue their crucial work is put on a sustainable, long-term footing. I beg to move.
Lord Harris of Haringey (Lab)
My Lords, I declare my interest as chair of the National Trading Standards board and welcome this government amendment to put the funding of the illegal money lending teams on a stable footing. As the Minister said, the teams do an enormous amount of extremely important and valuable work. A recent prosecution dealt with an individual who was charging those unfortunates whom he was offering allegedly to help interest rates of 400,000% per annum. Figures I have for England and Wales show that the work of the illegal money lending teams has led to the writing-off of debts in excess of £55 million. So the work is value for money and extremely important. It is quite right that the funding of these teams should now be put on a long-term, sustainable footing and it is entirely proper that the legitimate part of the lending industry should make sure that those who operate illegally and prey on people who are in a state of considerable distress are dealt with appropriately.
Lord Sharkey
My Lords, this is a very good amendment and we support it. Until now, funding for action against illegal money lending has come mostly from BIS with occasional help from the Treasury reserve. As Harriet Baldwin noted in the Commons committee, this funding was constantly being questioned in spending reviews and she rightly saw the need to protect it from the depredations of Chief Secretaries. This amendment does that by changing the funding mechanism to a levy on consumer credit firms. These firms benefit from being within a robustly enforced perimeter and we welcome this change. We welcome the move to provide sustainable and stable funding for the fight against illegal money lending.
Lord Davies of Oldham
My Lords, while we support the amendment, my colleagues in the other place made a strong argument which I want to rehearse now. Of course, we agree that it is right that there should be stable funding for operations against money lenders who take advantage of their position, but, as my noble friend Lord Harris indicated, loan sharks at their worst can levy the most extortionate charges on the people who come within their purview. We would have preferred a levy not on the industry but from general taxation, because our anxiety is that those at the bottom end of the market, who have the most ruthless operational relationship with the public, will pass on these costs by taking even more money from those who are vulnerable to them. We accept the amendment and of course will not contest it, but we would rather the levy came out of general taxation than being an impost, which we know some in the industry will pass on to others.
Lord Bridges of Headley
My Lords, I again thank noble Lords for their support in principle for much of this amendment; in particular, I thank the noble Lord, Lord Harris, for his comments given his experience in this area.
Clearly, we disagree with what the noble Lord, Lord Davies, said about why this is not being funded by taxation. As I said in my opening remarks, the current cost of the enforcement regime is around £4.7 million. Consequently, the costs to individual firms in the £200 billion consumer credit market is anticipated to be small. Therefore, it is unlikely that they will be passed on down the chain. With that in mind, I hope the amendment will be agreed.
Lord Ashton of Hyde
That this House do agree with the Commons in their Amendment 9.
“Money laundering
(1) In any regulations or orders transposing money laundering measures contained within Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 (or in relation to any subsequent EU amending or successor measure) the Secretary of State shall have a duty to ensure, insofar as such regulations relate to institutions regulated by the Financial Conduct Authority—
(a) reasonable regard and due prominence is given to—
(i) Preambular (33),
(ii) Article 13(2),
(iii) Article 15, and
(iv) Article 16 and Annex II;
(b) clarity is achieved with respect to the meaning and interpretation of “prominent public function” in the context of money laundering;
(c) reasonable regard and due prominence is given to Article 22 which recognises that a PEP may have no prominent public function; and
(d) any interpretation of “adequate” in Article 20(b)(ii), and “enhanced” in Article 20(b)(iii) takes account of, and gives due prominence to, the provisions in Article 13 on risk sensitivity.
(2) The Financial Services and Markets Act 2000 is amended as follows.
(3) After Part 20B insert—
“PART 20C
MONEY LAUNDERING
333U Anti-money laundering: guidance
(1) The FCA must, prior to relevant regulations coming into force, issue guidance to regulated entities on the definition of one or more categories of “politically exposed persons” (“PEPs”).
(2) Guidance under subsection (1) must include, but need not be limited to—
(a) a requirement to take a proportional, risk-based and differentiated approach to conducting transactions or business relationships with each category of PEP that may be defined; and
(b) specified categories of persons to be—
(i) included and
(ii) excluded
from any definitions of PEPs.
(3) The Secretary of State may, by regulation, make provision about—
(a) the guidance issued, amended and/or reissued under
subsection (1);
(b) arrangements for complaints about the treatment of individuals by regulated entities to be received, assessed and adjudicated by the FCA, where—
(i) a person was treated as though he or she was a PEP (and he or she was not),
(ii) a person who is a PEP was treated unreasonably in disregard of guidance under subsection (1), particularly in regard to specific elements required under subsection (2)(a), or
(iii) a person was refused a business relationship solely on the basis of that he or she is a PEP,
(c) circumstances in which—
(i) compensation payments are to be required from, or
(ii) financial penalties are to be imposed on regulated entities where complaints under paragraph (b) are upheld.
(4) For the purposes of subsection (1), “relevant regulations” means regulations transposing into UK law measures that EU Member States are required to implement to combat money-laundering (or subsequent regulations amending those regulations) that contain references to PEPs.
(5) The power to make regulations under subsection (3) is exercisable by statutory instrument which may only be made after a draft of any such instrument has been laid before, and approved by a resolution of, each House of Parliament.””
Lord Ashton of Hyde
My Lords, the amendment addresses the important question of how the banks are treating politically exposed persons, or PEPs, in the light of new global standards for anti-money-laundering and counterterrorist financing. I know that this issue has interested many noble Lords, directly and in respect of their families and close associates. I can tell the House that the Government share those concerns, which is why we have accepted this amendment to the Bill.
The Government intend to implement new money-laundering regulations by June 2017 at the latest. We will consult on the new regulations later this year. Organised crime, international corruption and terrorism cross national borders, so co-ordinating with our neighbours and Governments around the world is vital. We do this through the Financial Action Task Force, which revised its global minimum standards in 2012. At the same time as being robust, the UK’s anti-money-laundering and counterterrorist financing regime must be proportionate if it is to be effective and command public support. Resources must be focused on higher-risk areas and individuals, in line with accepted practice.
The Government have always encouraged banks to take a sensible and proportionate approach to this issue. They should apply appropriate “know your customer” measures that are tailored to reflect the risk posed by individual customers. I believe that several Members of this House and the other place have experienced difficulties with their bank accounts. No one should have their banking facilities refused simply because they have been identified as a PEP.
In addition to its focus on proportionality, the amendment addresses guidance on PEPs and the handling of certain PEP complaints. The Government will consult later this year on new money-laundering regulations and we will ask specific questions about the provision of guidance and the adjudication process. We will fully consider the letters that noble Lords have already sent to us on this topic when preparing our response to the consultation.
The Government’s anti-money laundering and counterterrorist financing regime is making the UK a more hostile environment for illicit finance. The amendment will ensure that a strong message is sent out about applying the rules in a proportionate and sensible manner and I commend it to the House. I beg to move.
Lord Sharkey
My Lords, as the Minister said, this House has frequently discussed the problems with the banks’ treatment of customers under their interpretation of the EU PEP rules. Each time we have done so, it has been quite clear that there are plenty of examples of banks frequently acting aggressively and disproportionately. It is quite clear that by unreasonably closing accounts, or threatening to, they cause real distress and the Government agree, as the Minister said, that the banks are ultimately at fault. In response to an Oral Question from my noble friend Lord Clement-Jones on 14 October 2014, the Minister, the noble Lord, Lord Deighton, said:
“I absolutely accept the criticisms that are made where banks behave disproportionately. It happens too often and we should work with them to fix that”.—[Official Report, 14/10/14; col. 115.]
It clearly has not been fixed and is probably getting worse as the banks anticipate the new EU directive.
Discussing this amendment on Report in the Commons on 19 April, Harriet Baldwin said that,
“if the transposition of the EU directive into domestic legislation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad”.—[Official Report, Commons, 19/4/16; col. 853.]
The Minister was right to warn of this possibility.
On Sunday, the Sunday Times ran a large and prominent article on the case of Alan Charlton. Mr Charlton retired from the FCO three years ago after 35 years’ service. He is our former ambassador to Brazil. His bank threatened to shut down his account as part of what the paper describes as the bank’s “crack-down” on PEPs. It is a little ironic that the bank in question is HSBC, so recently fined $1.9 billion for being what the US Senate described as,
“a conduit for drug kingpins and rogue nations”.
It is a case of closing the wrong stable door.
Lord Flight
My Lords, I welcome the amendment but the issue of PEPs is by no means solved and there is still a lot of nonsense happening. The last ruling by the noble Lord, Lord Deighton, was, interestingly, that PEPs were politicians in countries outside the UK and not within it; that came as a great shock to all of us. The EU rules make it clear that that is not the case and that PEPs are to be treated as domestic. In theory, that includes all Members of this House and the House of Commons and many others. That is completely ridiculous. The bottom line is whether people have the power to engage in corruption. I suggest that Members of this House, or in the Commons, do not have the power to engage in corruption unless they are a Minister.
Banks are criticised, but operating a bank account for a PEP is a complete loss leader, because banks are obliged to always check the source of funds and question any payment into the account. This is completely ridiculous unless you are dealing with people who are potentially corrupt. Where is all this coming from? It is the FCA that is giving out very strict guidelines to banks on how the PEP rules should be implemented. As I understand it, those guidelines are, at the moment, contrary to the Government’s own arrangements and I fear they may remain too demanding in future.
Baroness Kramer
My Lords, the kind of language the Government may use in dealing with this in legislation may be limited, but I am very glad that they are taking action. Will they take on board, when talking with allies in other countries, the importance of how the concept of the PEP is handled? I am in the appalling situation of finding that my husband’s relatives in the United States have been challenged on opening accounts because they are related to me. How that relationship was disclosed, I find extraordinary. There must have been an awful lot of trawling through genealogical tables, or else someone is reading my emails. There is a serious issue about how this spreads to the families of Members of this House, of Members of the other place and of others who may rightly be regarded as politically exposed. Their relatives at many distances removed surely cannot be caught in that trap.
Lord Tunnicliffe (Lab)
My Lords, I, too, have some sympathy with the concern about PEPs. My bank managed to be very surprised that my son had repaid a debt. There is no question that banks have overreacted in this area. In general, banks seem to overreact to regulation. They do not seem properly to understand proportionality at individual level. It reminds one that one does not have a right to a bank account, and suddenly one realises that one would be a non-person without one. So it is right that we look for some protection for politically exposed persons—who could be in a very widespread group.
However, one must not lose sight of the fact that the Panama papers revealed just how widespread money laundering is and how much of it happens among politically exposed persons. As far as I know, no politically exposed person has been revealed in the UK, but in the wider world money laundering is a fact and it feeds terrorism and corruption.
We welcome this amendment as an effort to produce proper proportionality on this subject, but the balance must be maintained—and, just as we must be concerned about PEPs, we must be concerned about potential crime and the maintenance of public confidence in officials.
Lord Ashton of Hyde
My Lords, I am grateful to noble Lords who have replied. There seems to be unanimity that this is a serious issue that needs addressing and at least a partial acknowledgement that this is a start. We have accepted this amendment because we acknowledge that there needs to be a sensible approach to this problem.
The noble Lord, Lord Sharkey, mentioned that guidance exists already. In many of my replies to noble Lords, I am going to fall back on the fact that, having begun the process with this amendment, a lot will depend on the consultation about the regulations that we will bring in before 2017. I urge noble Lords to take part in that consultation so that all the points that have been made today and the concerns that people have heard about can be brought into that consultation so that we can get a sensible set of regulations, which this House will be able to look at, in place before 2017.
The noble Lord, Lord Sharkey, mentioned penalties. Again, the degree of penalties will obviously be part of the consultation and will be included in the regulations when they come in due course.
Baroness Browning (Con)
Can my noble friend confirm to the House that the consultation will not be a three-week consultation issued in the middle of the long Summer Recess?
Lord Ashton of Hyde
The consultation will be conducted under the Cabinet Office rules for consultations—so it will be more than three weeks. I cannot today tell noble Lords when it is going to start. The Treasury accepts that this is an important issue and has accepted the amendment. It wants people to contribute to the consultation—so, although I cannot give an exact date for when it will start, it will be a proper consultation.
Lord Naseby (Con)
My noble friend says that he is not in a position to indicate when the consultation shall start—but we are in May 2016, nearly half way through the year. That suggests that, if we are not very careful, it will be the back end of 2017 before anything happens. The noble Baroness, Lady Kramer, raised a particular family issue; and the noble Lord, Lord Wright, who is not in his place, raised one last year, if not the year before, relating to one son in Singapore and another in the USA. This is not a matter that we can just put into the long grass. I know that my noble friend is not doing that, but it is getting very near the outfield. I suggest that he should come back to the House and tell us exactly when the consultation will start and when we will get some substantive recommendations out of it.
Lord Ashton of Hyde
I can reassure my noble friend, because the date that the regulations have to be brought in is June 2017, so the consultation will take place in the second half of this year. It will be implemented before June 2017. I think that that is pretty clear and there is no question of it being put into the long grass. I have subsequently learned that the consultation will be 12 weeks and it will be after July—so I hope that my noble friend will be reassured by that.
My noble friend Lord Flight basically implied that any enhanced due diligence for all Peers, MPs and MEPs would be ridiculous. The directive and the Financial Action Task Force do not agree. They think that anyone who is an MP should have some form of enhanced due diligence. Of course, there is a huge range that can take place within enhanced due diligence. The point of the amendment and the regulations will be to make sure that there is a true difference. A Back-Bench Peer who may not have the position to influence corrupt acts—although every Peer and MP has access to people, so they are not exactly like every citizen—will have some form of enhanced due diligence, but it should be proportionate. The way that this will be done will ensure that.
The banks are in absolutely no doubt about the Government’s view on this. The Chancellor has personally written to the heads of the large banks, and the Economic Secretary to the Treasury has written to colleagues. Every bank now has a contact person with whom Peers, MPs and MEPs can get in touch if they feel that the enhanced due diligence is too great.
Lord Higgins
Before my noble friend comes to his peroration, perhaps I could ask this. All this consultation is taking place against the background of an impending referendum on whether we remain a member of the European Union. Am I wrong in thinking that all this depends on European directives, and that if the vote were to go in favour of our leaving the European Union we would have to look at the whole thing again?
Lord Ashton of Hyde
Even if that took place, we would be a member of the European Union for at least two years under the arrangements. But this is based on our staying in; if we did not, we would have to look at a great many things in addition to anti-money laundering procedures—and I am not sure that this would even be top of the list.
I am sorry to hear about the problems that the noble Baroness, Lady Kramer, has had with her family—but, as I said, the proportional nature of the enhanced due diligence for politically exposed people will be taken account of. The amendment is a good start and I commend it to the House.
Lord Bridges of Headley
That this House do agree with the Commons in their Amendment 10.
“Early exit pension charges
(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After section 137FBA (as inserted by section 30) insert—
“137FBB FCA general rules: early exit pension charges
(1) The FCA must make general rules prohibiting authorised persons from—
(a) imposing specified early exit charges on members of relevant pension schemes, and
(b) including in relevant pension schemes provision for the imposition of specified early exit charges on members of such schemes.
(2) The rules must be made with a view to securing, so far as is reasonably possible, an appropriate degree of protection for members of relevant pension schemes against early exit charges being a deterrent on taking, converting or transferring benefits under the schemes.
(3) The rules may specify early exit charges by reference to charges of a specified class or description, or by reference to charges which exceed a specified amount.
(4) The rules made by virtue of subsection (1)(a) must prohibit the imposition of the charges after those rules come into force, whether the relevant pension scheme was established before or after those rules (or this section) came into force.
(5) In relation to a charge which is imposed, or provision for the imposition of a charge which is included in a pension scheme, in contravention of the rules, the rules may (amongst other things)—
(a) provide for the obligation to pay the charge to be unenforceable or unenforceable to a specified extent;
(b) provide for the recovery of amounts paid in respect of the charge;
(c) provide for the payment of compensation for any losses incurred as a result of paying amounts in respect of the charge.
(6) Subject to subsection (8) an early exit charge, in relation to a member of a pension scheme, is a charge which—
(a) is imposed under the scheme when a member who has reached normal minimum pension age takes the action mentioned in subsection (7), but
(b) is only imposed, or only imposed to that extent, if the member takes that action before the member’s expected retirement date.
(7) The action is the member taking benefits under the scheme, converting benefits under the scheme into different benefits or transferring benefits under the scheme to another pension scheme.
(8) The Treasury may by regulations specify matters that are not to be treated as early exit charges for the purposes of this section.
(9) For the purposes of this section—
“charge”, in relation to a member of a pension scheme, includes a reduction in the value of the member’s benefits under the scheme;
“expected retirement date”, in relation to a member of a pension scheme, means the date determined by, or in accordance with, the scheme as the date on which the member’s benefits under the scheme are expected to be taken;
“normal minimum pension age” has the same meaning as in section 279(1) of the Finance Act 2004;
“relevant pension scheme” has the same meaning as in section 137FB;
and a reference to benefits includes all or any part of those benefits.”
(3) In section 138E(3) (contravention of rules which may make transaction void or unenforceable)—
(a) omit the “or” at the end of paragraph (a);
(b) at the end of paragraph (b) insert “or
(c) rules made by the FCA under section 137FBB.””
Lord Bridges of Headley
My Lords, Commons Amendment 10 places a duty on the Financial Conduct Authority to cap early exit charges that act as a deterrent to people accessing their pensions early under the new pension freedoms. The Government took the step of introducing this amendment in Committee in the Commons following detailed evidence-gathering exercises that showed the extent of consumer detriment caused by early exit charges and the imperative to act quickly in order to limit this.
Evidence from the FCA found that there is a small but significant cohort of people in contract-based pension schemes for whom early exit charges were posing a real barrier to accessing the freedoms. The FCA found that some 670,000 people over 55 in such schemes face an early exit charge, and for 66,000—almost one in 10—this charge would exceed 10% of the value of their pension pot. In some cases these charges would be high enough to make it uneconomic for an individual to access their pension flexibly, while in others, the presence of an early exit charge may have acted to discourage individuals from accessing their pension when it could have been the best thing to do in their circumstances.
It is therefore clear that the Government’s objective of ensuring that everyone who is eligible can access their pension savings flexibly is not being met and that action is needed to ensure that all consumers are able to make use of the freedoms. In order to ensure that the cap benefits current consumers who are eligible to use the freedoms now, subsection (4) of this clause provides that any cap will apply equally in relation to existing arrangements, as well as those entered into in the future. The decision to introduce a measure which will have retrospective effect in this way is not one that the Government have taken lightly; we recognise industry concerns about the way this cap will affect existing contractual agreements.
However, the Government’s view is that this action is warranted to ensure that individuals are not deterred from accessing their pension flexibly because of contractual terms they entered into long before the freedoms were introduced. These people would not have been in a position to make an informed decision about potential early exit charges when they signed up. Even some pension providers have conceded that industry practices have moved on and that the introduction of the pension freedoms means that these charges pose a much more significant barrier now than when they were agreed.
To be clear, this measure is about ensuring that consumers are adequately protected against early exit charges being imposed at a level so high as to deter them from accessing their pension early under the pension freedoms. This clause is not about determining the fairness of these, or other existing contractual terms and conditions more generally. That is a separate, wider issue which this Government have recently addressed in the Consumer Rights Act 2015, legislation which the FCA has the power to enforce against the firms it regulates.
It is important to consider the nature of the contractual terms affected through this measure. The Economic Secretary made it clear when introducing this clause in the other place that terms providing for market value reductions should not be subject to the cap on early exit charges. Subsection (8) of this clause gives the Treasury a power to introduce secondary legislation to provide for this exclusion to the FCA’s duty. FCA rules already place rules on how firms may apply a market value reduction, and the cap on early exit charges will not add to or modify these rules. Furthermore, in order to ensure that the level of any cap is fairly set, the FCA will determine the precise level of the cap, following further public consultation and cost-benefit analysis. The FCA will be setting out its next steps in this process shortly, with a view to implementing this cap before the end of March 2017.
This clause gives the FCA the flexibility to apply different rules to different classes or descriptions of charges if it finds that the evidence demands this, but the Government’s expectation is that any FCA cap or prohibition will apply equally for all those consumers accessing their pension aged 55 and above, up to their expected retirement date, rather than being set at different levels for different age groups. Although data collected by the Pensions Regulator suggest that early exit charges are less prevalent in trust-based pension schemes, we will also act to ensure that all members, regardless of scheme, are protected from excessive early exit charges, and the DWP and the Pensions Regulator will work alongside the FCA as they develop the design and level of the cap for contract-based pension schemes to ensure that this is possible.
The pension freedoms have given consumers much greater freedom of choice in the financial decisions they make at retirement. Commons Amendment 10 will provide important protections to consumers in contract-based pension schemes, ensuring that they are not deterred from using the pensions freedoms by excessive early exit charges. I beg to move.
Baroness Drake (Lab)
My Lords, I take this opportunity to thank the Minister for meeting my noble friend Lord McKenzie and me to discuss this amendment in detail. I am most grateful for that. As has been said, the amendment places a new duty on the FCA to make rules to prohibit or cap early exit charges that act as a deterrent to people accessing their savings under the new freedoms. This amendment is particularly interesting for two reasons. Unusually, it introduces legislation with retrospective effect on existing contracts and a new deterrent regime in addition to the existing fairness regime in financial conduct regulation—in effect, charges must not be at a level that deters people from accessing their savings.
The Government believe the legislation needs retrospective effect because of the need to protect existing and future consumers, and—more interestingly, when one reads the detail of their proposals—that fairness should not be determined solely by reference to whether or not it was fair to include a term in a pension contract a decade or decades ago, but that it has to be looked at against how unfair contracts legislation has evolved since those contracts were entered into, and through the new lens of the recent pension freedom reforms, all of which arguments I agree with. But given that the Government have taken the decision through this amendment to enable retrospective changes to existing pension contracts and recovery of amounts paid or payment of compensation for charges made in contravention of the new FCA rules coming into force in March 2017, and that the pension freedoms, which provide the new lens for looking at fairness, were introduced in April 2015, I cannot understand why the consumer protection in the new FCA duty does not apply with effect from April 2015. Why is it necessary to wait until March 2017 when the FCA rules are implemented—a full two years after the pension freedoms were introduced—before consumers are protected by the provisions on fair access to savings?
The Minister advised in his letter of 16 March that the Government are introducing this amendment,
“in light of detailed evidence gathering, and an imperative to act quickly in order to limit the extent of consumer detriment caused by early exit charges”.
The Government’s main defence for this two-year gap from April 2015 to March 2017 in protecting consumers is that savers who access savings between these two dates from a scheme whose early exit charges are considered excessive under FCA rules to be implemented in March 2017 cannot have been deterred by those charges and presumably are therefore not in need of retrospective protection. That argument simply does not sit comfortably with the Government’s view that some people are being denied fair access to their savings. It suggests that the new deterrent regime trumps fairness—in effect, if a person accessed their savings they have not been deterred, ergo the early access terms are fair.
There are many reasons why people may access their pension savings during that two-year gap, even though the charges may be excessive. There may be ill health or other compelling personal circumstances that override the deterrent effect. People may not be aware of, or understand, the excessive early exit charges, so do not make their decision on an informed basis. The FCA data reveal that 78% of affected consumers rated their pension provider’s explanation of the exit charge and its level as poor.
In his letter of 16 March, the Minister comments:
“In order to ensure that the provision benefits current consumers who are eligible to use the pension freedoms now … this clause provides that any prohibition or cap imposed by FCA rules applies equally in relation to existing pension contracts, as well as those entered into in future”.
In the light of that statement, it is most unfortunate that the amendment excludes from the protection consumers accessing their savings between April 2015 and March 2017, even though in other circumstances it allows for a retrospective effect.
Baroness Kramer
My Lords, I echo the objections just raised by the noble Baroness, Lady Drake. It is quite inexplicable that “retrospective” does not mean that the new regime will be recalculated from the date that people were able to access their pension pots. It seems equally unfair for people to have paid an inappropriate exit fee a year ago as it is for them to pay an inappropriate exit fee a year from now. Has the Minister considered how this will tend to inhibit decision-making by families until the new regulations are revealed? Instead of making the best decision for the family, there will be great pressure to delay that decision until the rules are clearer and, presumably, the exit fees are removed.
The amount of money involved in this process cannot be substantial but to the individual family that has been impacted, it is certainly significant. I really do not understand the Government’s thinking on this issue.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for his early warning of this amendment, for facilitating the meeting with officials and for addressing at that meeting some of the incisive and expert questions posed by my noble friend Lady Drake. As we have heard, the new clause places a requirement on the FCA to make rules to prohibit or cap certain early exit charges in regulated schemes which act as a deterrent to people accessing their pensions under the new pension freedoms. So far as it goes, this should be supported.
As the Minister’s letter of 16 March sets out,
“after the reforms took effect last April, it has become increasingly clear that early exit charges were preventing some people from accessing their pension flexibly under the freedoms”.
This was substantiated by the government consultation and evidence-gathering by the FCA and the Pensions Regulator. This process identified a number of weaknesses in the application of the freedoms policy: not just the early exit charges but a lack of clarity in the process for transferring pension savings and uncertainty around the need for financial advice when making transfers involving safeguarded benefits.
Although early exit charges are not an issue for the majority of those eligible to access freedoms, the Government have concluded that significant numbers of eligible individuals face charges which in absolute or relative terms present a “real barrier” to early access. This begs the obvious question of why this matter was not addressed as a fundamental component of the design of pensions flexibility in the first place. Why has it seemingly come as such a surprise to the Government that these early exit charges exist and could act as a deterrent? This is symptomatic of the rushed nature of the introduction of this policy more generally, which lacked the consultation and consensus-building that have typically characterised good pensions policy development.
It might be argued that before the introduction of the FCA cap—to be in place before the end of March 2017, as we have heard—there has been no detriment because by definition exit fees could not have been a deterrent to the 400,000 times that pension pots have been accessed to date. But it seems that exit fees could be a deterrent, making it less likely, weighed against other factors, that someone would access their pension pot, without these fees being an absolute bar. That is why, as my noble friend has argued, we consider that any capping should be applied not only to existing as well as new contracts but to pensions accessed from the start of the pension freedoms regime in 2015, a point supported by the noble Baroness, Lady Kramer.
Lord Bridges of Headley
My Lords, I thank noble Lords who have spoken in this debate. Let me pick up on the final point which was just made by the noble Lord, Lord McKenzie. I heed what he says about getting access to this amendment sooner but I would somewhat refute what he says about the rushed nature of the entire policy. When this problem was first identified the Government took immediate action to address it by embarking, as I have mentioned, on the FCA evidence-gathering exercise. However, I thank in particular the noble Lord and the noble Baroness, Lady Drake, for the time that they have spent discussing this clause and amendment with me. I have already committed to write to them shortly to address a number of the very forensic and detailed points that were made to me last week. I will do that as soon as I possibly can.
A number of your Lordships including the noble Baroness, Lady Kramer, raised a valid question about why we are not backdating this measure to 2015, when the pension freedoms came into effect, and not requiring providers to pay back the early exit charges which they received from customers in the period between April 2015 and when the cap comes into effect. I would make two points on this, as already outlined in my remarks. First, the purpose of this measure is not to require the FCA to assess the fairness of the contractual terms of historic pensions. The intent of the measure is to ensure that early exit charges are not imposed at an inappropriate level which deters consumers from accessing their pension early under the pension freedoms. Clearly, those who have decided, or will decide, to access their pension despite an early exit charge have not, or will not, have been deterred by the existence of such a charge.
Secondly, I accept the observation that, once in effect, this cap will obviously benefit some consumers who would not have been deterred by the early exit charge in their contract. However, the Government believe that it is an ordinary consequence of introducing a new measure of this sort that those—in this case, consumers—who take an action before the law comes into force do not benefit from the new law. Moreover, it is right that the Government do not rush to make legislation which has any sort of retrospective effect but that they do so only when there is clear and compelling evidence that it is in the public interest, and then make that retrospection as minimal as possible to ensure that the action is proportionate. That is what I and the Government believe that this clause achieves. It is proportionate and focused on those who greatly need it, and that is why I commend it to the House.
Baroness Drake
Before the Minister finishes, if I may, the defence is given that this is not a fairness regime but a deterrent regime and that there is therefore no evidence of deterrence and no need to make it retrospective. But on the FCA’s own evidence, the knowledge and understanding of these charges is quite poor. It is difficult to be deterred if you do not know that you are being exposed to excessive exit charges. People will not know that they are being exposed to them until the FCA has done its business, which will be by March 2017. It seems a little unfair. At the very least, perhaps the Government should be taking steps to ensure that companies and other agencies make consumers aware that if they wait until March next year, they may get a better deal.
Lord Bridges of Headley
The noble Baroness, as so often, makes a very valid point. This is precisely what the consultation sets out to address. It aims to ensure not just that consumers are properly protected but that they make informed and proper decisions. I will write to the noble Baroness to make these points in more detail.
Lord Ashton of Hyde
That this House do agree with the Commons in their Amendment 11.
Lord Bridges of Headley
That this House do agree with the Commons in their Amendment 12.
“( ) In paragraph 14 for “submit a monthly” substitute “, at least 8 times in each calendar year, submit a”.”