Credit Card Invoices

Lord Holmes of Richmond Excerpts

Tuesday 26th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

The Government are considering responses to a recent consultation on draft legislation for buy now, pay later. The Government believe that any regulation of this area must be proportionate, because buy now, pay later can be very useful to a large number of people. There are existing protections in the Consumer Rights Act, and the FCA has powers over the terms and conditions of the buy now, pay later contracts.

[Lord Holmes of Richmond (Con)]

My Lords, I declare my financial services interests as set out in the register. Does my noble friend agree that, whether paying with a credit card or a debit card, one should be able to do so in an accessible manner? That will happen only if all financial services products and card payment machines are designed with inclusion in mind right from the outset.

[Baroness Vere of Norbiton (Con)]

I am grateful to my noble friend for raising this issue again. As I mentioned last time, there is now a consumer duty, which is a very important underpinning for financial services providers, which have a duty of care for their customers. That came into effect on 31 July 2023, and the Government and the FCA will monitor the effectiveness of the consumer duty as it beds in.

Electronic Payment Devices

Lord Holmes of Richmond Excerpts

Tuesday 19th March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I recognise the issues raised by the noble Lord, and the financial services industry also recognises these challenges. As I have already said, UK Finance publishes a list of vendors, recognising that it is not just financial services companies that use these machines; it may be the merchants themselves. This builds on work by UK Finance and the RNIB in publishing accessibility guidance, which only happened in 2022. Today, the third in a series of three forums is happening involving UK financial services groups and charities, and each of the three forums is focusing on specific interventions—whether it be technology or training to help improve the accessibility of all sorts of banking services.

[Lord Holmes of Richmond (Con)]

My Lords, I declare my financial services interest as set out in the register, and I congratulate my friend, the noble Lord, Lord Blunkett, on his timely Question. There are two issues involved here: access to, and the accessibility of, financial services and products. Both have serious impacts, if not got right, not just for the blind and visually impaired but for all people in our communities. For example, bank notes have never been more accessible, and yet have never been more difficult to access. What further conversations will the Government have with UK Finance and with all financial services organisations to ensure that there is both access to and accessibility of all financial services and products? Without this work, the Government cannot really stand up any claims to financial inclusion.

[Baroness Vere of Norbiton (Con)]

My noble friend raises a wide suite of issues. Underpinning all the work the financial services industry is doing is the Financial Conduct Authority, which is responsible for regulating the sector. Principle 6 of its principles for business says that the sector must take particular care in the treatment of vulnerable customers. The FCA is reviewing the needs of vulnerable customers and may update its guidance shortly.

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[Baroness Vere of Norbiton (Con)]

Now that is a first at the Dispatch Box—I have been invited on to buses and trains but never out to dinner. I do not know what to say to that, but I will try to find a restaurant that has an appropriate touch screen and I would be happy to continue the conversation.

[Lord Holmes of Richmond (Con)]

My Lords, does my noble friend agree that, if the concept of “inclusive by design” was thoroughly understood, we would never have had these inaccessible touch-screen devices? Will she go back to the department and ensure that HM Treasury works to ensure that all financial services and products are inclusive designed at every stage?

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend. That is something that the FCA should take from this, and it needs to feed back into the work that we know that EY, in conjunction with UK Finance, is doing on accessibility at the moment. If they are not talking about “inclusive by design”, then I think they are going wrong.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

Moved by

[Lord Holmes of Richmond]

108: After Clause 71, insert the following new Clause—
“Designated artificial intelligence officer
(1) The Secretary of State must by regulations provide that companies operating in the financial services sector who use artificial intelligence (“AI”) must have a designated AI officer.(2) The AI officer under subsection (1) has responsibility for ensuring the—(a) safe,(b) ethical,(c) unbiased, and(d) non-discriminatoryuse of AI.(3) The AI officer under subsection (1) also has responsibility to ensure that data used in any AI technology is unbiased.(4) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This amendment would require firms in the financial services sector that use AI to have a designated AI officer.

[Lord Holmes of Richmond (Con)]

My Lords, in moving Amendment 108 I will speak also to Amendment 109 in my name and, in doing so, I declare my technology interests as set out in the register. The purpose of both amendments is predicated on the fundamental truth that AI is already extraordinarily powerful and pervasive across our financial services, impacting so many elements of people’s experience and ability to access and avail themselves of financial services. If AI is to human intellect what steam was to human strength, we see the extent of the issue.

In Committee, the Minister perhaps rightly suggested that it would be wrong from a policy perspective to have an AI reporting officer in financial services and not consider this across the whole of the economy. If so, will my noble friend take back to the Treasury the need to work across departments—with the Business Department and the newly formed DSIT—to consider an approach where an AI-responsible officer on the boards of all companies would be considered, for the benefit of all those involved in the provision of those services; in this context, financial services? Perhaps this would be a good topic to work up for the AI summit which will be taking place in London later this year. Similarly, the UK has an extraordinary opportunity to be a leader in ethical AI, and I ask my noble friend whether it would make sense, with colleagues across government, to expand the specificity of these amendments in financial services and look at how they might be implemented, coming off the back of the AI summit in the autumn.

The Bill provides an opportunity to raise the whole question of AI. I bring these amendments to do just that. I believe that it would make a real difference to financial services—consumers, businesses and regulators alike—if these amendments were considered in that context, but I completely accept that there is a broader context and would welcome my noble friend’s comments on both the specific and the broader context. I beg to move.

[Lord Harlech (Con)]

My Lords, I thank my noble friend Lord Holmes of Richmond for tabling these amendments for discussion. The Government are firmly of the view that artificial intelligence has the opportunity to revolutionise every aspect of our lives, and we are committed to unlocking the enormous benefits that it can bring, in a way that is fair and allows everyone in society to benefit.

In March 2023, the Department for Science, Innovation and Technology published proposals for a new regulatory framework for AI regulation in the government’s AI regulation White Paper. This sets out a proportionate, adaptable framework for AI regulation, underpinned by five potential cross-sectoral principles, which include concepts such as fairness, safety and transparency, to strengthen the current patchwork approach to regulating AI indirectly.

Through the proposals for the new AI regulatory framework, we are building the foundations for an adaptable approach that can be adjusted to respond quickly to emerging developments. The vast majority of industry stakeholders we have engaged with so far agree that this strikes the right balance between supporting innovation in AI while addressing the risks it presents. We are committed to a proportionate approach to AI regulation that allows us to maximise the benefits that AI can bring to the economy and society and can effectively respond to the fast-moving risks presented by AI.

The White Paper is currently undergoing public consultation until 21 June 2023. We will continue to work with experts and stakeholders across the AI economy during the consultation period and beyond in order to identify emerging opportunities and risks and ensure that the regulatory framework can adapt to them. Furthermore, the FCA, the PRA and the Bank of England recently published a discussion paper on how regulation can support the safe and responsible adoption of AI in financial services. Last week, the Government announced that the UK will host the first major global summit on AI safety this autumn.

While I am very sympathetic to the intentions behind my noble friend’s Amendments 108 and 109, the Government believe that they could result in unintended complications in the use of artificial intelligence in the financial services sector. I hope that I have sufficiently reassured noble Lords that the Government remain committed to an effective and consultative approach to the use of artificial intelligence within the financial services sector. Noble Lords can be reassured that the Government will continue actively to involve Parliament in decisions in this area, particularly in relation to the future creation of a digital pound. Therefore, I ask my noble friend to withdraw his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I thank the Minister for his full response, which is appreciated. It is a thoroughly good thing that, particularly this year, we have heard more conversations and considered thought around AI, both in this place and in wider society, than we probably had in preceding years. I hope that we can have increasing public engagement and public debate around AI to ensure that everybody is enabled to take the benefits, understand the risks and understand that they are mitigated, managed and eradicated by regulators and legislators so that the UK can be the place where ethical AI is championed for the benefit of businesses, consumers and communities alike. I very much look forward to the global summit later this year. I beg leave to withdraw the amendment.

Amendment 108 withdrawn.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, as your Lordships know, the Bill delivers the outcomes of the future regulatory framework, or FRF, review. It repeals hundreds of pieces of retained EU law relating to financial services and, as we have discussed, will give the regulators significant new rule-making responsibilities. The Government have been clear that these increased responsibilities must be balanced with clear accountability, appropriate democratic input and transparent oversight. The Bill therefore introduces substantial enhancements to the scrutiny and accountability framework for the regulators.

Following Grand Committee, the Government have brought forward a series of amendments which, taken together, seek to improve the Bill through further formalising the role of Parliamentary accountability, supporting Parliament through independent analysis and scrutiny, and increasing reporting and transparency to drive overall accountability. The group we are now debating covers proposals aimed at increasing reporting and transparency to drive overall accountability. I look forward to discussing the Government’s other amendments on accountability later today.

There has been significant interest in ensuring sufficient reporting, in particular of how the FCA and PRA are operationalising and advancing their new secondary competitiveness and growth objectives. The regulators are required to publish annual reports setting out how they have advanced their objectives, which are laid before Parliament. Clause 26 ensures that, in future, these reports must also set out how they have advanced the new secondary objectives.

Clause 37, introduced following the debate in Commons Committee, enables the Treasury to direct the FCA and PRA to report on performance where that is necessary for the scrutiny of their functions. To further support transparency, the Government published a call for proposals on 9 May, seeking views on what additional metrics the regulators should publish to support scrutiny of their work advancing their new objectives. This closes on 4 July.

The Government have been clear that they expect there will be a step change in the regulators’ approach to growth and competitiveness following the introduction of the new objectives, while maintaining high regulatory standards. It will therefore be important to have detailed information available to scrutinise how the regulators embed their new objectives into their day-to-day functions.

The Government have therefore tabled Amendment 11, which will require the FCA and the PRA to produce two reports within 12 and 24 months of the new objectives coming into force. These reports will set out how the new objectives have been embedded in their operations, and how they have been advanced. Once the new objectives have been embedded, it is appropriate that the regulators report on them in the same way as their other objectives, through their annual reports.

The Government have also heard the calls for further transparency to drive overall accountability in other areas of the regulators’ work. Clauses 27, 46 and Schedule 7 require the regulators to publish statements of policy on how they will review their rules. The Government’s response to the November 2021 FRF review consultation set out the regulators’ commitment to providing clear and appropriate channels for industry and other stakeholders to raise concerns about specific rules in their rule review framework.

Reflecting representations made during my engagement with noble Lords between Grand Committee and Report, the Government have tabled Amendments 20, 52 and 56, which strengthen this commitment. The amendments will place a statutory requirement on the regulators to provide a clear process for stakeholders, including the statutory panels, to make representations in relation to rules and a statutory requirement to set out how they will respond.

I hope that noble Lords will support these amendments, which seek to provide Parliament, the Government and stakeholders with the relevant information to effectively scrutinise the regulators’ performance and drive overall accountability. I therefore beg to move Amendment 11, and I intend to move the remaining government amendments in this group when they are reached.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in the second day of Report. I declare my financial services interests as set out in the register. I thank my noble friend the Minister and all the Treasury officials for their engagement during and particularly after Committee with the issues in this group of amendments.

I will speak to Amendments 12, 19, 40, 41 and 92 in my name. Noble Lords with an eagle eye on the Marshalled List will note that there is more than a similarity between the amendments I tabled in Committee and in this group, and the government amendments. I thank the Government sincerely for taking on board not just the issues but also my wording.

Ultimately, as the Minister said, this is one of the most significant changes to financial services regulation in a generation. It is important that, in structuring the role of the regulator, we have at this stage the right level of scrutiny and the right requirements for the regulators to provide the information required at the right time to undertake that scrutiny.

The arrival of the international competitiveness objective is a positive thing within the Bill. These amendments give scrutiny the right opportunity to see how that objective is operationalised. Does the Minister agree that it is important to look at every element of information and the timeliness of all the elements being given to both financial services regulators to enable the right level of scrutiny to take place? To that extent, I ask her to comment particularly on Amendment 92, alongside my other amendments, because this seems like no more than the base level of detail that one would want to be able to form that crucial scrutiny function.

Having said that, I am incredibly grateful to the Minister, the Government and all the officials for taking on board so many of the issues and the wording from Committee, and bringing them forward in this group.

[Lord Forsyth of Drumlean (Con)]

My Lords, I find myself in the very odd position of having to say that the Government have handled Committee stage consideration of the Bill brilliantly. The Minister listened to a lot of quite robust criticism of the Bill, some of it from me, on the issue of accountability. It is fair to say that, across all sides of the Committee, there was a feeling that it was essential that there be proper accountability and scrutiny, given that we are, in effect, giving the regulators all our financial services legislation. She spent a great deal of time talking to all noble Lords in Committee and listening to those concerns. I therefore support the government amendments and thank her and her colleagues for the brilliant way in which they responded to what was a very robust Committee.

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Moved by

[Lord Holmes of Richmond]

13: After Clause 24, insert the following new Clause—
“Financial Inclusion Objective for the FCA
(1) FSMA 2000 is amended as follows.(2) In section 1B (FCA’s general duties), after subsection (4A) insert—“(4B) When discharging its general functions in the way mentioned in subsection (1) the FCA must, so far as reasonably possible, act in a way which, as a secondary objective, advances the financial inclusion objective (see section 1EC).”(3) After section 1EB insert— “1ECFinancial Inclusion ObjectiveThe financial inclusion objective is: facilitating as far as is practical, the inclusivity of the UK’s financial system.””

[Lord Holmes of Richmond (Con)]

My Lords, there are currently quite a few difficulties with the UK economy, but one that seldom gets the focus, attention and commentary that it requires is the lack of financial inclusion for so many people right across the United Kingdom. At its extreme, it is best summed up as: those who have the least are often forced to pay the most for financial services and products. However, it is a question not just for individuals but for micro and small businesses, which can find themselves effectively financially excluded.

Amendment 13 simply seeks to introduce a secondary objective for the FCA on financial inclusion. It would not in any sense fetter any of the other objectives, not least the primary objectives. It could operate effectively and efficiently within that current stream of objectives for the regulator.

Without in any sense seeking to pre-empt my noble friend when she comes to wind up, I think that she may well say that it is not the right approach to introduce a new objective for the financial service regulators without first undertaking a significant and serious consultation. That is a fair point. If she is unable to accept my Amendment 13, would she agree to take away the opportunity and possibility to launch the consultation into a secondary objective for our financial service regulators on financial inclusion? I beg to move.

[Lord Davies of Brixton (Lab)]

My Lords, my Amendment 14 proposes a new clause to the objectives, adding the principle of protecting the mental health of consumers. I set this out at some length in Committee, and I think it is worth repeating the point. I should perhaps say at the beginning that I support the other two amendments, although I prefer the one from my Front Bench. I would like to see an explicit statement that the concept of financial inclusion extends to people who have problems dealing with financial services because of problems with their mental health.

Financial services have to understand and recognise the nature and scale of the mental health problems faced by some people. They need to be placed under an explicit duty of care to their customers who suffer from these problems, and they should be required to take explicit additional steps to minimise the potential difficulties faced by those who have or are at risk of having mental health problems associated with their finances.

I am sure that all noble Lords accept the principle that financial regulation should pay regard to the problems faced by people who have problems with mental health. It goes almost without saying. The issue is not about the principle but about whether it should be referred to explicitly in this bit of the legislation. I think that it should, but I am willing to take small mercies if the Minister can make clear the explicit and implicit responsibilities on the regulators to undertake to provide this sort of support and explanation for people who have mental health problems.

The experience works both ways: financial problems lead to mental health problems, and people with mental health problems have difficulty in handling their finances. That is an established fact. I ask for general support for the principle and an indication that, one way or another, the legislation will provide these people with the support they require.

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[Baroness Penn (Con)]

Some of the implications of the noble Lord’s contribution on potentially obliging people to use certain payment systems show that including financial inclusion under the consumer protection objective could have quite far-reaching consequences that we would want fully to think through and consult on before changing the objectives. That lies behind the Government’s concern about this approach.

As I was saying, this does not mean that there is no action to promote financial inclusion by the Government and the regulators. Major banks are required to provide basic bank accounts for those who would otherwise be unbanked. As of June last year, there were 7.4 million basic bank accounts open and during 2020-21 around 70,000 basic bank account customers were upgraded to standard personal current accounts, graduating to more mainstream financial services products. The FCA’s financial lives survey has shown that those aged over 75 are becoming more digitally included, with 64% digitally active in 2020 compared to 41% in 2017. However, we absolutely recognise that there is more work to be done in this area. The Government have allocated £100 million of dormant asset funding to Fair4All Finance, which is being used to improve access to affordable credit, with a further £45 million allocated recently to deliver initiatives to support those struggling with the increased cost of living.

While the FCA has an important role to play in supporting financial inclusion, it is already able to act where appropriate. For example, it has previously intervened in the travel insurance market to help consumers with pre-existing medical conditions access affordable credit. As the noble Baroness, Lady Chapman, recognised, the new consumer duty developed by the FCA is yet to come into force and we are yet to feel the full benefits of that. However, importantly, these issues cannot be solved through regulation alone. Where there are gaps in the provision of products to consumers, the Government will continue to work closely with the FCA and other key players across industry and the third sector to address them.

I turn to Amendment 14 from the noble Lord, Lord Davies of Brixton. I reassure him that the FCA is already well placed to take into account the protection of consumers’ mental health within its existing objectives. The regulator’s vulnerability guidance sets out a number of best practices for firms, from upskilling staff to product service and design, and specifically recognises poor mental health as a driver of consumer vulnerability. Where FCA-authorised firms fail to meet their obligations to treat customers fairly, including those in vulnerable circumstances, the FCA is already empowered to take further action. Since the publication of the vulnerability guidance, the FCA has engaged with firms that are not meeting their obligations and agreed remedial steps.

In summary, the Government believe that this is an incredibly important issue but consider that it is for the Government to lead on the broader issues of financial inclusion. Where necessary, in the existing framework the FCA is able to have the appropriate powers to support work on this important issue. While the Government do not support these amendments, I hope that I have set out how they are committed to making further progress in this area. I therefore hope that my noble friend Lord Holmes will withdraw his amendment and that the noble Lord, Lord Davies of Brixton, and the noble Baroness, Lady Chapman, will not press theirs when they are reached.

[Lord Holmes of Richmond (Con)]

My Lords, I thank everyone who has participated in this debate, and my noble friend the Minister for her response. This will continue to be a significant issue until we have something in the country which looks far more like financial inclusion for all those who are currently feeling the sharp end, or the wrong end, and who are shut out of so much of what passes for financial services today. However, having listened to my noble friend the Minister, I will not push this matter any further today. I beg leave to withdraw Amendment 13.

Amendment 13 withdrawn.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I will speak to all the government amendments in this group, which are part of a package of changes that the Government have brought forward to support scrutiny and accountability of the financial services regulators.

This group of amendments focuses on supporting that work through independent analysis and scrutiny. The Government have listened to the view expressed by noble Lords that, for there to be effective scrutiny, it is critical that Parliament and others have access to accurate and impartial information to assist in assessing the performance of the regulators. The Government have carefully considered the proposal, put forward by my noble friend Lord Bridges in Grand Committee, to establish an office for financial regulatory accountability, or OFRA.

While the Government cannot accept the proposal to establish an OFRA, we have considered what more can be done to support the provision of independent analysis and scrutiny. FSMA already requires the regulators to consult on rule proposals and establish independent panels to act as a “critical friend” in the rule-making process. The regulators seek to engage the panels at an early stage of policy development and the panels voluntarily produce reports annually on their work.

Through the Bill, the Government are already enhancing the role of the statutory panels to support scrutiny and accountability. This includes Clause 43, which requires the regulators to publish a statement of policy on how they recruit members of their statutory panels. In addition, following the debate in Commons Committee the Government introduced Clause 44, which requires panel members to be external to the regulators and the Treasury.

However, the Government have heard the calls from across the House for further reassurance that the regulators’ approach to panel recruitment will ensure that panel members are drawn from a diverse range of stakeholders and are sufficiently independent of the regulators. The Government have therefore introduced Amendments 23, 24, and 57, which will require the FCA, the PRA and the PSR, as part of their annual reports, to set out how recruitment to their panels has been consistent with their statements of policy.

The Bill also already introduces measures to strengthen the quality of the regulators’ cost-benefit analysis, including the introduction of new, independent panels to support the production and development of CBA. It is important that CBA reflect as accurately as possible the costs and benefits to firms and consumers of implementing and following regulation. In assessing this, the experience of regulated firms themselves is vital.

The Government are grateful to my noble friend Lord Holmes for raising this issue in Grand Committee, and again through Amendments 44 and 47 today. The Government have reflected on that earlier debate and introduced Amendments 43 and 46, which will require both the FCA and the PRA to appoint at least two members to their CBA panels from authorised firms.

To ensure that Parliament has access to the important work of the panels, the Government have introduced Amendment 50, which provides a power for the Treasury to require the panels to produce annual reports. The Treasury will then be required to lay these reports before Parliament. I can confirm that, in the first instance, the Government will bring forward the necessary secondary legislation to require the CBA panels and the FCA Consumer Panel to publish an annual report to be laid before Parliament, reflecting the fact that the work of the Consumer Panel and the new CBA panels has been of keen interest to noble Lords in earlier debates. The Government will keep this under review, and the legislation will allow the Government to require other panels to publish annual reports and lay these before Parliament if they consider that appropriate in future.

Finally, Amendment 95 seeks to strengthen the independence of the complaints scheme through which anyone directly affected by how the regulators have arrived at their decisions can raise concerns. The scheme is overseen by the independent complaints commissioner, and Amendment 95 seeks to strengthen that independence further by making the Treasury responsible for the appointment of the commissioner, rather than the regulators.

Existing legislation requires the complaints commissioner to publish an annual report, including trends in complaints and recommendations for how the regulators can improve, which is to be laid before Parliament. Amendment 95 also enables the Treasury to direct the commissioner to include additional matters in the annual report. This will ensure that, where appropriate, the Government can make sure that the report covers issues which the Government consider are important to support scrutiny of. Amendment 95 also requires the regulators to include a summary of where they have disagreed with the commissioner’s recommendations, and their reasons for doing so, in their response to the commissioner’s annual report.

The Government have been clear that the regulators’ increased responsibilities as a result of the Bill must be balanced with clear accountability, appropriate democratic input and transparent oversight. The package of amendments we are debating in this group contribute to that and support Parliament through additional independent analysis and scrutiny.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in the debate on this group of amendments. I will speak to Amendments 42, 44, 45 and 47 in my name, and offer my support for all the amendments in the name of my noble friend Lord Bridges, to which I have added my name. I will leave him to set them out.

I again thank my noble friend the Minister, and the Treasury officials and team, for all the meetings and work done during Committee, and between Committee and Report, on the question of regulator scrutiny and accountability. I thank her particularly for adopting my Amendments 44 and 47 on the membership of the panels. On my Amendments 42 and 45, could she say a little more about the evidence base the panel will use to come to its recommendations? Would it be valuable to publish any dissenting opinions on the matters to be published? This would be extremely helpful for Parliament to scrutinise the panel’s decisions.

Finally, I ask a broader question around cost-benefit analysis. How will HMT and the regulator seek to ensure that the whole CBA process is meaningful, balanced, considers all majority and minority views, and does not fall into the potential trap of being a utilitarianist pursuit, which cost-benefit analysis can sometimes fall foul of?

That said, I thank again the Minister and the Treasury officials for their support for the amendments and for the discussions we had to come to this point, particularly on Amendments 44 and 47. I look forward to hearing in detail, particularly from my noble friend Lord Bridges and the Minister, the suggestion around the office for regulator accountability.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I will briefly speak to Amendment 39, to which I have added my name, and government Amendment 50. I declare that I am on the board of the ABI. More relevantly, as the amendments are about the Consumer Panel, I speak as a former vice-chair of one of the statutory panels, the Financial Services Consumer Panel. It was some time ago and our focus then was on the FSA rather than the present FCA, but our role was essentially the same.

I was on the panel before the events of 2007 and 2008. As a panel, we were warning about the risk to consumers of interest-only mortgages, high loan to value mortgages—which were really unacceptable to us—and high mortgages relevant to income. It was just before the crash, but I am not pretending that we foresaw what would happen, even though we were worried about those things. We did not anticipate what was happening in the financial sector, starting with Fannie Mae and Freddie Mac and Northern Rock. Our concern was about how consumers would fare should house prices tumble and their incomes not rise—or, indeed, if interest rates should increase. We saw them as a very vulnerable group of consumers.

What is interesting and relevant to Amendments 39 and 50 is that our role was only to advise the then FSA. Sadly, it did not pay enough attention to what we were saying. It might have given it a little bit more on its dashboard had it done so. Had our report been to Parliament and the Treasury perhaps someone might have noticed and taken an interest. That lives in the “What if?” category of history, but it explains my support of any report made by people who represent consumers being brought to public attention.

Amendment 39, to which I have added my name, was so brilliantly written and argued for in the Commons by my honourable friend Nick Smith. I should say that a long time ago we worked together when he was the Labour Party agent in Holborn and St Pancras and I was the CLP chair. Quite a bit seems to have happened since then to both of us. I knew at the time that he was able to take an issue with which he was dealing and see the broader context, which is how we come to the amendment he has essentially developed and which is in front of the House today.

My honourable friend’s interest was sparked when he was campaigning on behalf of members of the British Steel pension scheme—a scandal which led the NAO and the PAC to conclude that the FCA fell drastically short of its proper role in protecting consumers of financial services. His interest in that brings me to where we are today.

In my time, we have witnessed nearly £40 billion being paid in compensation to consumers who were mis-sold PPI, although the full costs were paid much later. Again, as consumer reps, we flagged up that this was not an appropriate product for most of those it was being sold to. Just occasionally, listening to consumers is good not just for them but for the industry and the whole economy. The voice of consumers is worth listening to.

The Government’s Amendment 50 is very welcome. It requires the statutory panels—I am particularly interested in the Consumer Panel—to report to the Treasury and for their reports to be laid before Parliament. This will bring consumer interest to the heart of our public discourse, which will be good for all concerned. I thank the Government for their amendment on this. I am happy that this trumps, or at least meets, Amendment 39.

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I trust that the Government will have the support of noble Lords in making these significant amendments to further strengthen the Bill in relation to access to cash and within the context of the related topics we will discuss today. I therefore beg to move Amendment 73.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this debate and I will speak to Amendments 82 to 85 and 110 and 111 in my name. I start by thanking the Minister and Treasury officials for all the work they have done around access to cash and, indeed, the moves they have taken. It is great testament to all those organisations which have campaigned on cash for so many years, and will make a real difference to people up and down the country.

Without in any sense pre-empting the work that the regulator and others will do on this, I ask my noble friend the Minister to set out some thoughts on what reasonable access might look like. What are the Government expecting? Allied to that, while I join her in welcoming the increase in the number of shared banking hubs that are coming online, what do the Government see as a reasonable number of hubs to be open by the end of this year?

My Amendment 82 seeks to go further and is really predicated on a very simple belief: what point is access to cash if there are no places to spend it? What currency does cash have in those circumstances? The start point would be really to have all businesses with a physical presence mandated to accept cash. Stepping back from that, as my amendment does, does my noble friend the Minister not agree that any government service, be it central or local, and any public service, particularly that which involves a payment, must accept cash? Similarly, any third party acting on behalf of national or local government in performing a public service should be mandated to accept cash. Does my noble friend see it as reasonable for any business, private though it may be, with a turnover of £100,000—as set out in my Amendment 82—to have to continue to accept cash while we move and transition towards a more digital financial services system?

Amendment 83 seeks to make our cash network part of the critical national infrastructure. There are two key reasons for this. First, it would enable cash usage, enable the economy to work and enable financial inclusion. Secondly, does my noble friend the Minister not agree that, when one looks at the current geopolitical state of the world, making the cash network part of the critical national infrastructure would provide a good second and third line of resilience if the digital systems should go down or suffer an attack? As things stand, that is not beyond the realms of possibility.

Amendment 84 addresses banking services specifically and would enable the Treasury to determine that such services must be available on a high street with a certain number of shops and premises. Banking services would include withdrawals and deposits and must cover both individuals and businesses. Indeed, as the amendment sets out, if there is a last branch standing, that branch should not be allowed to close unless alternative provisions are already in place, such as a banking hub.

Amendment 85 addresses the accessibility of financial services and products. This is differentiated from access to financial services, although there are some obvious overlaps. The amendment points out the difficulties with the accessibility of certain financial services and products. The obvious and most easy example to understand is card payment machines where the buttons are removed and there is merely a flat screen. They are completely inaccessible for me and thousands of people.

In Committee, my noble friend the Minister talked about discussions between the Government, the RNIB and other organisations. Can she update the House on where those discussions have got to? How will the Government ensure that, whether one is paying for a meal or a bicycle, the means of payment is accessible for all those seeking to use it?

Amendment 110 addresses the need for a review of access to digital financial services and products. I raised this in Committee and do so again because it seems highly necessary and a logical next step from the Access to Cash Review, which was completed in 2019. Although I am a staunch supporter of cash and people’s access to and acceptance of it, the future is digital. However, we must ensure not only that that future is accessible but, equally crucially, that the transition to it is accessible. Does my noble friend the Minister agree that further work by HMT in this area would not only make sense following the Access to Cash Review but do a great service in addressing issues which will be felt sharply if we do not address them at this stage?

I will give just one brief example. I could have on my handheld device the best mobile banking app ever created, but if I do not have the digital skills and the confidence to use that app, no payment will be made. Similarly, if, in those same circumstances, I have those digital skills but no mobile connectivity or broadband, that payment will not be made. We need this review of access to digital financial services, before these problems become acute and they affect not only people’s finances but all elements of their lives.

Finally, Amendment 111 addresses the issue of the last branch standing in any particular location but seeks to push a bit further. If there is a remaining branch on a town high street, that is a good thing. However, if that branch does not offer a full banking service, particularly to small and medium-sized businesses and micro-businesses, and if it does not serve more than 20% of the local community, does my noble friend the Minister not agree that we should change the regulations to enable a shared banking hub to be opened in that area?

I look forward to my noble friend the Minister’s response. I hope she will respond fully to all my amendments, but particularly to Amendment 111. A very simple change between Report and Third Reading would make such a potential difference for many of the areas in those circumstances.

[Baroness Kramer (LD)]

My Lords, I will be exceedingly brief because we took, as we should have, a lot of time on this issue during Committee. We have also discussed financial exclusion already. Once again, I am channelling my noble friend Lady Tyler of Enfield, who wishes that she were not ill and could be here today. I will focus my remarks on Amendment 80 in the name of my noble friend Lady Tyler, and which is signed by me.

The numbers that have been provided to any parliamentarian of interest by LINK on the rate of bank branch closures are frankly scary. The number of bank branches is now below 5,000 across the country and is expected to fall to around 1,000 in the next few years. Amendment 80 gives the FCA power, where certain conditions are met, to direct the establishment of a banking hub. Banking hubs are the solution proposed by the banking industry, in association with LINK, to provide a physical banking facility which is essentially a collective of the relevant banks and the Post Office, in locations where bank branches have disappeared. I am very sympathetic to the idea that the noble Lord, Lord Holmes, proposed, where a branch in name but not in practice because its services are so limited would qualify as well.

LINK has recommended 100 of these shared hubs, but so far only six have opened. Quite often, that is because of the resistance of the banking institutions, which, in effect under the current scheme, have a veto on whether these hubs happen. The gap is yawning and the FCA needs to step in. Because this was raised in Committee, I say that anyone who thinks that online banking is a substitute for face-to-face banking can live only a very vanilla life. I found out the hard way that the systems online and the telephone constantly get it wrong. Often, the only way to resolve a complex issue is face to face. As others have said, including the noble Lord, Lord Holmes, the 5 million people who find digital difficult are even more disadvantaged.

I seriously hope that the Government will accept Amendment 80 because it is the missing mechanism to deliver the project—the Government themselves back the project—of banking hubs and shared banking. To get it delivered we need Amendment 80 to put powers into the hands of the FCA to make sure that it happens. This is a project, I repeat, that the Government themselves have sponsored, in a sense. We need the enablement and delivery to take place rapidly.

UK-EU Relationship in Financial Services (European Affairs Committee Report)

Lord Holmes of Richmond Excerpts

Wednesday 17th May 2023 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this debate. I start by declaring my financial services interests as set out in the register. I congratulate the noble Earl, Lord Kinnoull, all the members of the committee and, indeed, all the staff of the House who worked on producing such an interesting and thought-provoking report. It is a pity that it has been some nine months since the report was published; it certainly deserved debate before this point. However, taking opportunities where they lie, this gives us an opportunity to act as an excellent curtain-raiser to the Report stage of the Financial Services and Markets Bill, coming up on our return on 6 June.

I will focus on four key areas: fintech, talent, the regulators and crypto assets. We have rightly heard from other noble Lords about the UK-wide nature of our financial services. Similarly, this goes for our excellent fintech businesses right across the United Kingdom. Does my noble friend the Minister agree with me that it is a matter of pride that, although last year was a difficult year for fintech, where global funding fell 30%, in the UK it was only 8%? It is no reason at all for complacency but there are a number of factors about which we should feel great pride and focus: we have the blessing and great good fortune of geography, time zone, language and—perhaps the greatest good fortune of all—English law to underpin all our financial services, not least our thriving fintech services.

Does the Minister also agree that, taking ourselves back to the Financial Services Act 2021, it is excellent that we have recently seen the establishment of the Centre for Finance, Innovation and Technology? It is likely to play a positive role in future; it was raised by the Economic Secretary to the Treasury during Fintech Week and is clearly an important part of the journey going forward.

Does the Minister agree that, if we will this, we can make success happen? There can be no greater example of this than the FinTech Sandbox, made in the UK. What measure of success shall we take? It has been replicated in well over 50 jurisdictions around the world. Does she also agree that we should have high hopes for the FMI sandbox, which will come about once the current FSMB becomes an Act later this summer?

Moving on, talent has rightly been raised—first of all, homegrown talent. Does my noble friend the Minister agree that, for all our young people, developing an understanding of real financial literacy is the greatest way to build a workforce across the piece, particularly—for the purposes of this debate—in our financial services sector? We need far more across our education system, right from the outset, and we need to build upon that with financial inclusion woven through every beat point that we consider. I very much agree with my noble friend Lord Bilimoria’s comments: international talent urgently needs to be addressed. Does the Minister agree that we have to grip this visa question?

Similarly, moving on to one element of the regulators’ work, visas aside, it cannot take nine months for a senior manager from overseas to gain authorisation. What do we need to do to ensure greater efficiency in that part of our regulators’ work? As has already been mentioned, does my noble friend the Minister agree that Report would be the ideal moment for her to accept amendments that would enable Parliament to have the right scrutiny and regulators to have the right level of accountability so that we truly have regulators and a regulatory framework that benefit the entire economy and the entire country? Consumer protection should not be seen at one end with competitiveness at the other; they are not mutually exclusive. If they are rightly structured and considered, with the right accountability mechanisms, both should thrive in our regulatory framework.

Does the Minister see that my noble friend Lord Bridges’ amendment on an office for financial regulatory accountability offers much to address this issue and benefit our regulators? In the discussions a number of years ago, nobody on either side of the debate said that this was about repatriating powers to our regulators. Parliament must have the right level of scrutiny and the right role in this, rightly structured and stood up.

Finally, would the Minister care to comment on the recent Treasury Select Committee report on crypto assets, on how one should consider unregulated crypto assets and on the committee’s assertion on gambling? It is clear that the crypto market moves at pace and that, putting it mildly, not all within it is necessarily where one would choose to put one’s cash, but we need to take the right approach.

I wonder whether the Minister has had time to consider the House of Representatives’ financial services inquiry last month. It called the chairman of the SEC before it to consider the whole question of the regulatory approach to crypto assets. There is much for the UK to consider within that.

Similar to consumer protection and competitiveness considerations, we should not need either to consider completely shutting down crypto assets or to believe that they are the latest, greatest thing. We should be able to approach them with rational optimism, with the right regulatory framework in place. I am sure that my noble friend agrees that what the Bill currently proposes on the digital assets space is positive. We should commend the work of the Law Commission on digital assets and decentralised autonomous organisations.

Finally, can my noble friend the Minister comment on what consideration has been given to the regulatory approach of the Monetary Authority of Singapore, and the Hong Kong and Swiss regulators? What are the key learnings and how have they influenced the Government’s approach to our regulators, as set out in the FSMB as currently drafted?

And finally finally, I echo the comments of many noble Lords in very much supporting the approach that we are trying to have with Switzerland. Can my noble friend comment on what stage that is at and give her full-throated support? It offers an excellent example of what can be done and, when it comes to fruition, both nations and far beyond will completely and certainly benefit.

Banks: Closures and Shared Banking Hubs

Lord Holmes of Richmond Excerpts

Thursday 27th April 2023 Lords Chamber

Asked by

[Lord Holmes of Richmond]

To ask His Majesty’s Government how many (1) bank branches have closed, and (2) shared banking hubs have opened, in the last 12 months; and what steps they are taking to minimise the former and speed up the latter.

[Lord Holmes of Richmond (Con)]

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my financial services interests as set out in the register.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the Government do not make assessments of bank branch networks or intervene in commercial decisions to close branches. Banks should follow FCA guidance, including considering alternative access where appropriate. One example of this is shared banking hubs. More than 50 hubs have been announced, with four now open, and the pace of delivery is expected to accelerate over the coming months. People can also access everyday banking via their local post office.

[Lord Holmes of Richmond (Con)]

My Lords, in the past 12 months, 847 bank branches have closed or are set to close. Four shared banking hubs have opened. Does my noble friend the Minister agree that the Government need to act to ensure local banking provision, including deposit taking as well as withdrawals and advice? They must also act to ensure acceptance of, as well as access to, cash; otherwise, what currency is cash if there is no place to spend it? Finally, will the Government consider carefully commissioning a review into access to digital financial services to ensure that everyone can benefit from all the financial innovations in that space?

[Baroness Penn (Con)]

My Lords, as my noble friend will know, in the Financial Services and Markets Bill, we are legislating to protect access to cash. That covers withdrawal as well as deposit services. The Government do not plan to mandate the acceptance of cash. That would be an unprecedented intervention. However, the increased access particularly to deposit services for businesses should allow those who wish to continue to accept cash to be able to do so on a more sustainable footing. My noble friend makes an interesting suggestion. The Government are working hard to ensure financial inclusion, including digital financial inclusion. I will think about his suggestion very carefully.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

Moved by

[Lord Holmes of Richmond]

218: After Clause 71, insert the following new Clause—
“Digital identification
(1) Within six months of the passing of this Act, the Secretary of State must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.(2) The digital IDs should be—(a) scalable,(b) flexible, and(c) inclusive.(3) The Secretary of State must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process with regard to the financial sector.(4) In this section—“digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1;“flexible” means capable of resilience and workable as technologies develop and evolve;“inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010;“scalable” means capable of national deployment.”

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to move Amendment 218 in my name and to speak to this group of amendments. In doing so, I declare my financial services and technology interests as set out in the register. I will speak to Amendments 218, 220 and 221 in my name and will also speak briefly to the remaining amendments in the names of my noble friends Lord Bridges and Lord Forsyth respectively.

Amendment 218 is about perhaps one of the most significant things that we could do to transform financial services in the United Kingdom. Whether we are talking about fraud, operational efficiency or whatever measure or element of financial services we are considering, to have a form of digital ID would transform the current situation. It is vital that the Government strongly consider and move forward with such a system of ID and, in doing so, fully engage the public on this. Understandably, if the public one day wake up and find that they need a digital ID to access their banking services, why would they think that is a good thing if they had not been involved at any stage in the creation and the deployment of such an ID?

To put it in a non-financial services frame, if I wanted to have a pint—not now, obviously, although the previous group perhaps took longer than we were expecting—I might be asked for a passport. What is the purpose of that? Why should the bartender see my name, my date of birth, my passport number, where I was born, et cetera? All that is required for that pint to be put in front of and consumed by me is that, at the point when I order and consume the pint, I am over the age of 18. Nothing more needs to be known.

The same credential-led approach is what we require in financial services—not a huge giveaway of data with the potential for businesses to grab everything about us, as has happened in other sectors of the economy. Put simply, we need a particular credential that is within an individual’s control and can be put across to enable a transaction or inquiry, whatever it may be, to take place. I ask my noble friend the Minister to comment on the need for the Government urgently to engage and to increase the work that is happening in other departments on a general digital ID to be particularly applicable to the financial services sector.

Amendments 220 and 221 concern artificial intelligence. It is worth me making a few preliminary points before I go into the specific elements of the amendments. A helpful Bank of England paper on this subject was put out on 11 October last year, lest anybody think that AI is something for the future and not for us to worry about in the Bill. In the paper, 72% of financial services businesses said that they already use, or are about to use, AI. None of them said that they believed that the current way in which they used AI was high-risk, while more than half said that they were currently constrained in their ability to deploy AI fully because of current regulations on the PRA and FCA approach to the subject. That is some of the backdrop. To put my own cards on the table, lest anybody think otherwise, I am neither Panglossian nor po-faced about AI or, indeed, any of the other new technologies that we have in our hands. Yes, they are incredibly powerful technologies, but they are in our human hands in terms of how we design and deploy them. Thus I describe myself as rationally optimistic about their potential.

Amendment 220 brings this to life, I hope. It is a real opportunity for the UK, not just in financial services but across the whole of our economy and society, if we have an approach to ethical AI. The UK could be world-leading in the deployment of ethical AI; financial services is as good a place as any to have such an approach. I reference the Centre for Data Ethics and Innovation in this amendment; I am not wedded to it. Other organisations, such as the Alan Turing Institute, also have a role to play but the key is that there is an agreed underpinning.

For example, when we did the Lords Select Committee AI report in 2018, we set out five ethical principles; I do not want to give them any more concretion, to reference a previous group, but I say to my noble friend the Minister that one of the key architects of those ethical principles was the right reverend Prelate the Bishop of Oxford, who was a member of the committee. One therefore understands that they have behind them more than just the weight of the mere mortals here today.

Amendment 221 seeks to build on the ethical AI deployed in financial services institutions, and to have in every such institution a member with a responsibility for AI, in the same way that we have a money laundering reporting officer. Obviously, specific to the size of the organisation, it does not need to be an individual who performs only that role, but somebody in every financial services institution in the UK needs to be a designated AI officer. Does my noble friend the Minister agree?

--- Later in debate ---

[Baroness Penn (Con)]

I am afraid that I have gone as far as I can in detailing the approach that we would take to Parliament. We expect to engage Parliament fully. However, the legal basis for the digital pound will be determined alongside consideration of its design. Work is not yet at the stage where we can provide that further clarity.

[Lord Holmes of Richmond (Con)]

I thank all noble Lords who have participated in this debate and my noble friend the Minister for her response. At this stage, I beg leave to withdraw the amendment.

Amendment 218 withdrawn.

--- Later in debate ---

[Viscount Trenchard (Con)]

Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.

However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I will speak to Amendment 238 in my name. Does my noble friend the Minister agree that “know your customer” and anti-money laundering—KYC and AML—are not working optimally? There is a plethora of examples that we could look at; I will not do so. The simple truth is that they are not fit for purpose and are not achieving their aims. They are not providing the environment that we would want to conduct our financial services in. Does my noble friend the Minister not agree, therefore, that it is high time we had a thorough review of the regulations to put in place a system that works and is inclusive, efficient and effective?

If we look at some of the practical elements, to put it in terms, is it not time that we stopped messing about with gas bills? That takes us to an amendment in a previous group on digital ID, which would go far in resolving many of the issues around KYC and AML. Does my noble friend the Minister not agree? The difficulties that we have heard about and which many members of the Committee may have experienced in all areas of the financial services landscape could be effectively resolved if we resolved the current situation with KYC and AML. It is resolvable; when she comes to respond, my noble friend the Minister could simply say, “I will resolve it”.

[Lord Eatwell (Lab)]

My Lords, on the point made by the noble Lord, Lord Holmes, surely these regulations are derived from the Financial Action Task Force. We would usurp international agreements if we modified our regulations in a way that was outwith the positions established by the FATF.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in day seven of Committee on the Bill. I again declare my financial services interests as set out in the register. I agree with almost all of the amendments in this group. Indeed, I have put my name to Amendment 184, in the name of the noble Lord, Lord Tunnicliffe. I will not say anything more about that; I will leave him to introduce it far more eloquently than I could.

However, I will speak to Amendments 186, 187, 189 and 239 in my name. I wish to talk about the accessibility of financial services and products, as well as access to them. Sometimes those two things are the same; sometimes they are not. I hope that I can bring that point to life with these amendments. In essence, what we are talking about here is a Bill that sets out some very good principles on access to cash. Cash still matters; it matters materially to millions. However, that is only one side of the coin. Without looking at the acceptance of cash, we might as well say, “What currency has cash if there’s no place to spend it?”, hence the need to look at access to and acceptance of cash if we are really to take the opportunity that this Bill presents us with.

Moving on, my Amendment 186 is about the need for “Accessibility of financial services and financial products”. It is what anybody should be able to rely on. Probably the best way to explain the intent of this amendment is through an example. For years, card payment machines were very accessible. They had raised numbers and a dot in the middle of the “5” key so everybody could use those machines independently, inclusively and accessibly. Now, we see a worrying and extraordinary rise in the use of flat-screen card payment machines. They are impossible for me to use. They are impossible for millions to use.

A worrying principle—I hope my noble friend the Minister will agree that it is such—underpins this. Through technological update, change and rollout, things that were previously accessible are now inaccessible. I do not believe that anybody in your Lordships’ House or elsewhere in the country wants that to be the case when it comes to financial services and products—surely not when it comes to any services or products. Does my noble friend the Minister agree? What do the Government intend to do to ensure that all financial services and products are indeed accessible for all users?

I move on to Amendment 187 on access to banking services, and a number of issues that the noble Baroness, Lady Tyler, touched on. With this amendment, I want to highlight the issue of acceptance of cash. There are a number of ways in which one could have gone about trying to assure its acceptance, such as imposing an obligation on retailers or on those of a certain size or kind, or on retailers offering a particular service. One of the major issues with acceptance of cash, specifically for small businesses, is what they do with that cash once they have it. It cannot be that cash becomes burdensome and expensive, particularly for small and micro-businesses. It cannot be that they have to spend an hour at lunch or the end of the day potentially closing their premises to drive to the next town or village to deposit the cash.

In Amendment 187, I suggest that all high streets of a specific size should have banking services which include deposits—

--- Later in debate ---

[Lord Holmes of Richmond (Con)]

My Lords, my Amendment 187 seeks to draw together the need for access to cash and acceptance of cash, but in no sense places burdensome requirements on retailers or financial services providers, in terms of the provision in local communities, by virtue of what is now possible through shared banking hubs. As we heard earlier in the debate, since the Bill entered Parliament on 20 July 2022, 390 bank branches have closed. Can the Minister say how many shared banking hubs have opened in that time? If we plot a similar trajectory for this year, which seems reasonable on the data we have available to us, and suggest a similar, if not slightly higher, number of bank branches closing, how many shared banking hubs will be open by 31 December this year?

Amendment 187 would provide access to banking facilities on every high street and give the Treasury the power to determine the size and scale of that high street to enable provision across the country for individuals and micro, small and medium-sized enterprises for deposit and withdrawal for the benefit of the community, the economy and our country.

Moving to Amendment 189, if we consider not only the need for cash but the current geopolitical circumstances we find ourselves in, it would seem a very good idea to classify the cash network as critical national infrastructure. I thank my noble friend Lord Naseby who has put his name to this amendment, which simply states that the cash network should be critical national infrastructure because of economic reasons. I believe we can move positively to a digital financial future where everybody is included. It is one heck of a transition, but I believe we can get there. Even when we reach that point, for reasons of reliance, there may well still be a need for cash. The level of the cash network could be determined by the Government, but having a cash network would seem to be a thoroughly good idea for reasons of resilience, unless the Minister can suggest an alternative second or third line of resilience, which I would be delighted to hear.

Finally, my Amendment 239 asks the Government to consider an access to digital financial services review. This is critical and timely. It would build on the great work that was done with the Access to Cash Review published in 2019. It would have many of the same aims, but in no sense the same specificities. If the logic was good for an access to cash review, which I believe it was, does my noble friend agree that the logic for an access to digital financial services review is equally good? I suggest that the review should look at issues around access to digital payments, online platforms, mobile applications, skills and, crucially, connectivity.

It is probably best to look at this in terms of an example. Imagine a mobile application, the best digital payments application ever created. However, I do not own a smartphone, so that digital payment is not being made. Imagine the same application, but it is not accessible. That digital payment is not being made. Imagine I own a smartphone and I have that app, but I am in an area of low or no connectivity. I could have the best digital skills, the best smartphone and this best app, but the payment is not being made. Imagine I have the app, the smartphone and the connectivity, but I do not have the digital skills. That payment is not being made.

It is those issues and more that we urgently need to look into with an access to digital financial services review, which can come up with recommendations for the Government to put into practice for the benefit not just of individuals but of micro-businesses, small and medium-sized enterprises, local economies, communities, cities and our country. The logic was good for an Access to Cash Review; I believe it is good for an access to digital financial services review.

To conclude, we need access to cash, as well as acceptance of cash; access to banking services on every high street; cash as critical national infrastructure; and an access to digital financial services review. Will my noble friend the Minister channel a retro TSB marketing campaign and, for all these amendments, be the Minister who likes to say yes?

[Baroness Noakes (Con)]

My Lords, I have Amendments 179 and 190 in this group. I am not very enthusiastic at all about the provisions for cash access and distribution in the Bill. I am far from clear that a heavy-handed regulatory solution, which is what we have in the Bill, is necessary to preserve cash access and distribution, but, if we have to have it, I believe that the powers in the Bill should be time limited, which is what my Amendments 179 and 190 seek to achieve. Under these, the powers would expire in 10 years, unless the Treasury brought a statutory instrument giving a later date.

This is not a hard-nosed sunset clause, because we genuinely do not know what the future will be like. What we do know is that, before Covid, the use of cash was on a long-term downward trend and the use of debit cards had already overtaken cash. Covid then accelerated those trends so that, by 2019, debit card usage was 50% higher than the use of cash, and the latest data for 2021 shows that debit cards were used three times more often than cash. UK Finance forecasts that, by 2031, cash will account for only 6% of transactions while debit cards will account for more than half.

I do not deny that some people are more comfortable using cash than other payment options, and I accept that digital exclusion exists. It may well be a proportionate response to the current need for cash to protect its availability in the way that the Bill does, but I find it hard to see why we should set cash up on a pedestal as though it is some form of human right.

There is a large cost associated with cash provision. The Access to Cash Review found that it costs around £5 billion per annum. That is ultimately borne by all users of banking services, with the possible exception of holders of basic bank accounts, which do not cover their costs anyway and are already loading costs on to other users. As the use of cash continues to plummet, the cost will become disproportionately high because most of the costs involved are fixed.

I am certain that the future is digital, and the real need in the medium term is not to build shrines around cash points but to incentivise the financial services sector to make digital payment systems more accessible and inclusive. The best fintech brains should be put to work on this, and the banks need to see that it is in their interests to support innovation. This is where the regulators should be putting their efforts, rather than working out where cash points should be.

For this reason, I quite like the idea behind my noble friend Lord Holmes of Richmond’s Amendment 239, which calls for a review of access to digital financial services, although I am not sure that now is quite the right time. I am also not sure that a review should result in decisions made by government. We need to incentivise the providers of financial services to provide answers for this, rather than thinking that government can dictate how things will work in practice as society changes.

Some of the other amendments in this group, in particular those in the name of the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Tyler of Enfield, seek to cling to an idea of high street banking that has already been overtaken by events. Bank branches closed because people stopped going to them; I predict that the new hubs will go the same way. The future is digital—that is what we should be trying to encourage. Making banks shoulder the costs of branches or hubs that are little used will simply increase the costs of the banking sector. This will end up harming consumers because costs will be passed on to them or, in some cases, providers may decide to withdraw from servicing particular sectors. In trying to preserve high street provision, the outcomes for consumers are not good.

I do not believe that it is responsible to legislate to preserve a version of the past unless there is clear evidence that the benefits outweigh the costs. I doubt that the cost-benefit case could, in truth, be made at the moment for maintaining branches or paying for the setting up of hubs, but I am absolutely certain that, when we look back in 10 or 20 years’ time, we will be amazed that we even thought that standing Canute-like against technological and societal change was the right thing to do in this area.

--- Later in debate ---

[Baroness Penn (Con)]

I will check for the noble Lord because I do not have that level of detail in my notes. They say that “85% of payments” were made without cash, not “the value of payments”, but I should double-check to clarify for him.

In the light of these innovations in the way that we bank, the Government recognise that it is incredibly important that people are not left behind—we have heard that in today’s debate. Many people still rely on physical services: in particular, millions of people still rely on cash and need access to withdrawal and deposit services.

Working with industry, the Government are already undertaking positive action to support cash access in this context. For example, existing initiatives subsidise free-to-use ATMs in remote and deprived areas. Following changes in the Financial Services Act 2021, there is a new ability to have cashback without purchase services, enabling withdrawals to the penny that people request. Communities can ask LINK to assess whether additional cash services are needed, with several major banks and building societies funding new shared services. As a result of that initiative, over 70 communities are due to get new cash deposit facilities.

In that context, it is important not to underestimate the significance of the provisions contained in the Bill. It is the first time, in UK law, that we are protecting people’s ability to access cash. The Bill provides the FCA, as the independent regulator, with the responsibility and necessary powers to ensure reasonable provision of withdrawal and deposit services.

In evidence to Parliament, the regulator said that it anticipates taking account of reasonable access to free cash services for personal customers—subject to due process, which includes a requirement to consult on its rules. In using its powers, the FCA will utilise the wealth of data that it has collected, including on access at the regional level, and it must have regard to local deficiencies in cash access services and the Government’s policy statement.

The noble Baroness, Lady Tyler, asked about the policy statement. It is currently being developed, and we expect it to be published after the Bill completes its passage. It is important that it takes into account the latest available data and evidence ahead of its publication.

I have clarification for the noble Lord, Lord Tunnicliffe, on the statistic that I used, so I shall not need to write. I can confirm that 85% of the number, not the value, of payments were made without cash.

[Lord Holmes of Richmond (Con)]

While we are getting clarifications in flight, may I ask my noble friend the Minister about the 86% of people using contactless? Are 86% of people using contactless all the time or are they making one payment a year? If someone from the Box is able to answer that in flight, that would be helpful.

[Baroness Penn (Con)]

That request has been noted. Reading the statistic in my notes, I would say that 86% of adults have used contactless payments, rather than it being a comment on how much they use them as part of their payment mix. If I am wrong, I hope that the people supporting me will tell me.

I talked about the policy statement and the significance of the measure that we are taking in the Bill. We have heard from the Committee that not everyone agrees with that approach. In legislating to protect access to cash, the Government have sought to provide that reassurance for those who rely on cash for a number of different reasons.

We have heard why it can be important for accessibility and for people to manage their finances. We have also heard about privacy concerns. However, we have not sought for the legislation to be prescriptive on the cost, type of facility or range of services offered at facilities. We are seeking to ensure that this primary legislation allows for innovation and flexibility, as the needs of people and our communities evolve over time. I think those advocating for greater access to services also recognised the need for that flexibility and change in needs over time. It is for those reasons that the Government do not support Amendments 176, 178, 182 and 185 from the noble Baronesses, Lady Tyler and Lady Twycross, and the noble Lord, Lord Tunnicliffe.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 20th February 2023 Grand Committee

Moved by

[Lord Holmes of Richmond]

123: Clause 41, page 57, line 22, at end insert—
“(c) be provided with any information or data that the Panel requires in order to fulfil its duties,(d) publish the agendas and minutes of meetings of the Panel, and(e) make publicly available its recommendations in full, including, but not limited to, the evidence base and analysis it used to make its recommendations, the assessed costs and benefits of the FCA’s activities and the range of representations made by Panel members to those recommendations.”Member’s explanatory statement
This amendment would require the FCA to provide its CBA Panel with the necessary data and information to undertake its duties and ensure that the Panel’s recommendations were made publicly available.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to start this fourth group on day five of Committee. As it is the first time that I have stood up today, I declare my interests in financial services as set out in the register.

I will speak to my Amendments 123, 129, 130, 132, 138 and 139; I thank my noble friend Lady Noakes for co-signing them. In essence, what they try to get at is pretty simple: to enable the CBA panels to be effective in the mission they purport to be set up to achieve.

I present to the Committee a new financial instrument: the ISA. Noble Lords might think that they are familiar with the ISA, but this ISA is “independence, scrutiny and accountability”, which we have heard so much about today and previously in Committee. I gift this particular ISA to my noble friend the Minister. Treat it as a woodworking router or some such device. If we take independence, scrutiny and accountability and apply them throughout the Bill, will she agree that, if current clauses do not stack up, they should be kicked out, improved and changed before Report?

With the CBA panels we currently have a conceptually useful form of ISA approach. However, the difficulty is that, as we have heard with so many other provisions in the Bill, as currently constructed they are the plaything of the regulator, again enabling the regulator to mark its own homework—or, even more so, to simply respond to whatever the CBA panels might say with, to put it in common parlance, “Whatevs”.

Importantly, rather than, for example, the membership of the panels, their agendas and outputs being down to the regulators, this suite of amendments can, in effect, empower a CBA panel to do its job effectively for all our benefit. Consider the membership: would it not be good if at least some of those members came from the sectors, with clear, recent and relevant expertise to bring to bear on the matters at hand?

If Amendment 123 and other amendments in my name—and others in this group, which all have a similar purpose—were agreed, it would enable these panels to operate far more effectively. The panels could also take a cumulative view on the impact of regulatory change. They could have a power of pre-regulatory scrutiny to consider the impact and force the regulator to think again before such regulations are brought into being. They could look at and opine on the overall economic impact of regulatory change. Having such an approach would make it far clearer and more transparent for all to see, when the costs are out there, whether there is necessarily any benefit from a particular change.

When my noble friend the Minister responds, will she agree that the CBA panels are a good thing, but it would be a great thing to fully enable and empower them to pass the ISA test? I beg to move.

[Lord Lilley (Con)]

My Lords, I did not speak on the previous group of amendments, but I endorse everything that my noble friend Lord Forsyth and the consensus of speakers said on that issue. I also strongly support what my noble friend Lord Holmes has spelled out, in not only proposing his amendment but providing an overview of this whole group.

We all agree that regulators must meet the objectives set by Parliament, but should do so in a cost-effective way, without erring, as regulators can, on the side of overburdensome regulation that makes life simpler for them without consideration of the costs to others. As drafted, the Bill requires both the FCA and the PRA to have two panels that undertake cost-benefit analysis. That is excellent but, as with much else in the Bill, it allows the regulators to mark their own homework or, at least, to appoint most of the panel of examiners who will mark their homework for them.

My Amendments 124 to 128 and 133 to 137 do, in essence, three things. They ensure, first, that all the members, not just the chair, are appointed by the Treasury rather than by the regulators; secondly, that they are independent; and, thirdly, more specifically, that they are not employees of the FCA or the PRA. I hope they find acceptance from the Government and this Committee. They are not contentious and are quite simple. They are within the spirit of the Bill, but simply tighten it up and make sure that what the Government appear to want is achieved without allowing the regulators to take over the process and run it in their own interest.

--- Later in debate ---

I hope that my noble friend Lord Holmes will be able to withdraw his amendment and ask other noble Lords not to press their amendments when they are reached.

[Lord Holmes of Richmond (Con)]

My Lords, I thank everyone who has spoken in this group; indeed, I thank my noble friend the Minister for her response. At the beginning of that response, she set out very clearly the role and purpose of these panels—a role and purpose that could only benefit from much that is in the amendments in this group.

This is an area to which we will return. To pick one example, if good people, even independent people, come through such an approach—as I am sure they will—as currently drafted, they will not be independent appointments; that is clear, and that is just one example. We will need to return to a number of these issues for the sole purpose of making the panels as effective as they can be; this will lead to better regulation, help the regulator and benefit the wider sector. For the time being, however, I beg leave to withdraw Amendment 123.

Amendment 123 withdrawn.