Financial Services Bill

Baroness Bennett of Manor Castle Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[Baroness Altmann (Con) [V]]

My Lords, I am pleased to speak to this amendment. I have worked in this industry for many years. The numerous scams, frauds and scandals that have plagued consumers are ongoing. It seems clear, as the noble Lord, Lord Sharkey, said, that the Financial Services and Markets Acts 2000 does not protect consumers. I thank the noble Lord, Lord Stevenson, for his clear explanation of why the amendment, in all its parts, is required.

A duty of care on providers to make sure that they are considering the interests of their customers would certainly help to address the asymmetry of information between the providers and the consumers. It might also assist customers in the manner that the products that are developed are offered. Too often, providers develop new products with new complexities that are clearly not user-friendly. The FCA requirements are that the risks and details of the products must be disclosed, but the disclosure documents are impenetrable to the ordinary person. Those working at the FCA and those working for the providers understand the language used—it is natural to them—but the vast majority of the public do not understand the specific product literature which the FCA has been relying on to offer this kind of protection. It is clearly not helping consumers to be faced with bamboozling jargon and many pages of legalese in the product descriptions and the terms and conditions.

The FCA consulted on this in 2017 and it released a statement in 2019, and other consultations have covered this as well. I congratulate the Government for having engaged on this issue, and my noble friends Lord True, Lady Penn and Lord Howe; I know they have all worked on this issue. But, from a practical perspective, and as someone who has worked in this industry, developed product for consumers and worked with consumers on the other side who have suffered detriment, I believe that the fears about competition are somewhat overdone. All firms, if they have a duty of care, will then have to look after customers, so the issue of competition should not really pose so much of an impediment. Markets currently function in the interests of providers rather than consumers, and regulators are reactive to problems rather than trying to pre-empt problems that have been highlighted and pointed out for two or three years before anything is actually done—by which time so many consumers have lost out.

Of course I believe that firms should not profit from exploiting the public’s lack of understanding and education when it comes to retail financial services. Successive Governments have talked about improving financial literacy, but they have not managed to achieve this. In practice, providers do not know their customers, the customers do not understand the product literature and, indeed, it seems that there is very often no requirement for the provider to even ask basic questions of the consumer before the consumer buys a particular product. There are countless examples of areas where just a basic question could have prevented a consumer buying an inappropriate product.

So I urge my noble friend on the Front Bench to take up the offer of the noble Lord, Lord Stevenson, and work with him and other interested Peers to come up with a form of words for Third Reading that can prevent a vote on this issue and can also help accelerate the important duty of care that is required. Waiting for a consultation later this year is simply not good enough when it comes to the kinds of scandals and scams that we know are going on day in and day out.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Altmann, and her powerful plea, which I hope the Government will listen to. I also speak to Amendment 1 in the names of the noble Lords, Lord Stevenson of Balmacara, Lord Sharkey and Lord Eatwell, to which I was pleased to attach my name, as I did to a very similar amendment in Committee.

Any noble Lords who have read the Second Reading debate will note that I majored on a “duty of care” in my speech. I used what you might call an expanded definition of “duty of care” to suggest that it might not be too much to put on the face of the Bill a demand that the financial sector should not engage in reckless, fraudulent, corrupt, obviously damaging systemic behaviour, including shipping off tranches of cash into tax havens, deploying complex financial instruments that they clearly do not understand and handing over control of markets to automated systems without adequate controls—things that threaten the security of all of us. But while I believe that principle remains sound, the lawyers convinced me that, in narrow legal terms, “duty of care” could not be stretched that far.

What the amendment here clearly introduces is a duty of care to individual customers. As proposed new subsection (2)(ea) says, their

“vulnerability, behavioural biases or constrained choices”

should not be exploited. Once, perhaps, such a clause was not necessary. There was a not ideal, but certainly useful, constraining paternalism: your local bank manager would look after you, both in limiting borrowing and in making allowances for unexpected disasters, personal and business. That has long gone—as of course has, almost universally, the local bank manager and, all too often, the local bank branch—so we need the law to step in to protect people to constrain the behaviour of financial institutions. As noble Lord, Lord Sharkey, said, we are in a situation where malfeasance has just continued to grow, with technical developments being one cause of that and, as noble Baroness, Lady Altmann, said, scandals and fraud have plagued consumers.

So that is the institutional side of where we are, but we also have to think about the state that people and our society are in today and make the law fit for our modern times, for these are times of massive insecurity. The idea of saving, or of even making the incoming funds match the essential outgoings each month, was an impossible dream for millions of people even before the arrival of the SARS-CoV-2 virus.

No one can know when sudden illness might strike—this Bill has been championed by Macmillan Cancer Support, to whose work I give credit—or it could be a redundancy or a pandemic that strikes people unexpectedly. That is one side of vulnerability and care that financial institutions should acknowledge. As Macmillan highlights, almost one in three of those severely financially impacted by their cancer diagnosis had to take out a loan or credit card debt. That is a public health issue. What we have are institutions that have been making profit from customers, sometimes for decades, and they have a duty to act compassionately and fairly in such circumstances.

But I think we also need to pay a bit of attention to the elements of the proposed new clause referring to “behavioural biases” and “constrained choices”. The noble Lord, Lord Holmes of Richmond, has been a rather isolated champion in this Bill on issues around the use of artificial intelligence algorithms and issues such as their potential bias, but he has also highlighted the way in which financial companies now have a historically uniquely detailed understanding of customer behaviour and the chance to exploit that through complex, opaque mechanisms.

As the noble Lord, Lord Stevenson of Balmacara, said in introducing an amendment, there has always been asymmetrical access to information between financial sector companies and their clients, but this has been massively magnified by technology—something that is only likely to grow. To create an assumption that this inequality of arms should not be misused should, we hope, constrain the behaviour of the financial sector—or at least, if it does not do that, provide a potential route for redress should it occur. There are already many who have need to seek redress for the behaviour of financial sector companies. I spent time with some of them this morning at a meeting of the Transparency Task Force.

As noble Lord, Lord Stevenson, said, the Government are likely now to say “Wait”—but why? We know that there is already an existing massive problem and a huge risk. If the Government do not acknowledge the need to act now, I offer the Green group’s strong support for the intention of the noble Lord, Lord Stevenson, to test the view of the House.

[The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)]

The noble Lord, Lord McNicol of West Kilbride, has withdrawn from the debate, so I call the next speaker, the noble Baroness, Lady Tyler of Enfield.

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Throughout the passage of the Bill and in many other fora, the Government have made it clear in their rhetoric that they understand the overwhelming importance of climate risk. These amendments would lay the foundation of turning those words into action, and I hope that the Minister will be able to respond positively to them.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Hayman, who is taking such a brilliant lead on these issues in your Lordships’ House. I thank her for her concentration on the biodiversity crisis as well as the climate emergency. Reflecting on her comments, I too hope that this is the last time it will be up to this House to add the missing element of climate to a financial Bill. Maybe for biodiversity we can proceed even faster. I too welcome the news about the FCA appointments—although putting that into the Bill, as Amendment 23 would do, would be better, because it would provide a statutory guarantee that such an appointment would continue.

I shall speak to Amendments 3, 22, 23 and 44. Amendment 44 is in my name, and Amendment 3 is in the name of the noble Lord, Lord Oates, and others. Amendments 22 and 23, to which I have attached my name, are in the name of the noble Baroness, Lady Hayman. I shall speak to Amendments 3, 22 and 23 together.

I had cause this morning to reflect back on the work of your Lordships’ house, by a similarly small and dedicated band, on the Medicines and Medical Devices Bill. At that team’s heart was the noble Baroness, Lady Cumberlege, author of the recent review often referred to by her name, but actually entitled First Do No Harm. Would that we could see the financial sector adopting that principle. Instead, it continues to pump funds into destroying the planet at breakneck speed.

An independent report by a coalition of NGOs, out this morning, shows that the world’s biggest 60 banks have provided $3.8 trillion-worth of financing for fossil fuel companies since the Paris climate deal in 2015. In our home sector, UK bank Barclays provides the most fossil fuel financing of all European banks—and the finance provided in 2020 was more than in 2016 or 2017.

The report notes that a commitment to be net zero by 2050 has been made by 17 of the 60 banks, but the report describes the pledges as “dangerously weak, half-baked, or vague”. It is clear that self-regulation—however much the Government may be wedded ideologically to the idea—has not worked. And we are in an emergency: we cannot wait.

Johan Frijns, at BankTrack, part of the coalition behind the report, says:

“there exists no pathway towards this laudable goal”—

net zero—

“that does not require dealing with bank finance for the fossil fuel industry right here and now.”

These amendments do not go that far, but they least set us on the right track—a track to transparency that does not require little-funded NGOs to dig well-buried data out of dark corners.

None the less, as others have noted, we have made some progress since Committee stage, and I welcome the government amendments in this group, which reverse the Government’s claim, made to me in Committee, that we did not need a reference to the climate emergency in the Bill. This will be, I believe, after the Pension Schemes Act, the second financial Bill to start to acknowledge the truth of doughnut economics—that the economy, and all human life, has to live within planetary limits.

That brings me to my Amendment 44, which addresses biodiversity. It is an addition to the government amendment requiring the FCA to “have regard to” the carbon target for 2050 when making Part 9C rules. My amendment simply adds another “with regard to”—in this case to the UK commitments under the UN Convention on Biological Diversity.

I referred to planetary limits. We are not yet focused nearly enough on the fact that the atmospheric carbon dioxide levels, at 417 parts per million today, is only one way in which we are outside the doughnut of sustainability. There is also the collapse of the natural world, as the globe’s Governments have acknowledged with the Convention on Biological Diversity, to which the UK is of course a signatory.

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I thank noble Lords for their indulgence. On behalf of the right reverend Prelate the Bishop of St Albans, I beg to move.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a great pleasure to follow the noble Lord, Lord Sikka, who has presented the amendment so clearly and effectively, while I also regret the absence of the right reverend Prelate the Bishop of St Albans, who has been doing such sterling work in focusing on the practical real-world impacts of the Bill on people’s lives and welfare, to which, as we have discussed in other groups, a lack of effective regulation in the financial sector has done such damage.

In Committee, during a debate on a similar amendment, the noble Lord, Lord Rooker, referred to brass-plate economies and the damage that they do to societies if they become dominant. Indeed, much of our debate in Committee focused on the well-being of the people of Gibraltar. I have no objection to that; indeed, I welcome it. I wish them well in their difficult post-Brexit position, which they were put into despite 96% of them voting in 2016 to remain in the EU. However, we have to ask why 20% of the UK insurance sector and a large amount of our out-of-control, seriously damaging gambling sector is going through Gibraltar’s servers, with very little benefit to the people of the UK. I doubt whether ending it will make any great difference to the people of Gibraltar either; as the noble Lord, Lord Sikka, has just outlined—and he is one of your Lordships’ House’s experts in this area—very little of that money is likely to be seen in Gibraltar in any meaningful sense.

I note that the Minister said in Committee:

“This proposal cannot be supported by the Government because it does not reflect Gibraltar’s autonomy”,


but I am not sure that I understand that. If we are talking about regulating activities in the UK, which is what the amendment is explicitly about, surely that is a matter of sovereignty—the issue to which the Government are so attached. Perhaps the Minister can explain that further in his answer.

In Committee, the noble Lord, Lord True, said:

“The Government were satisfied that the Gibraltar authorisation regime is rigorous”,—[Official Report, 1/3/21; col. GC 308.]


but we have to ask why so much business is whizzing through Gibraltar, at least in electronic form, for no obvious reason.

The noble Lord, Lord Sikka, pointed out in Committee that Gibraltar has a population of around 33,000 but more than 60,000 registered companies, nearly two for every person living on the Rock. We know that Gibraltar as a society must need people to fulfil many roles, from childcare to garbage collection, food preparation and, probably now much more than before, customs officials. The regulators of those 60,000 companies must be kept very busy keeping a tight and careful eye on their activities. Perhaps the reason is simply the comparative corporation tax rates. As the right reverend Prelate intended to say, our corporation tax rate is 19% whereas Gibraltar’s is 10%. Of course, the Government promise that our corporation tax rates will rise to become somewhat closer to international norms—if not just yet—so the disparity and the potential attraction are likely only to increase.

I referred in Committee to the Tax Justice Network estimate that the Gibraltarian arrangements inflict costs of $4 billion on other nations, predominantly the UK. That figure could grow significantly with tax rises, so I would argue that the case for this amendment has become even stronger, and I remain, with many others, doubtful about the level of transparency and scrutiny.

Ultimately, this amendment is about activities in the UK. It is not about Gibraltar at all. It is about transparency, honesty and ensuring that profits made in the UK are properly taxed in the UK.

[Baroness Kramer (LD)]

My Lords, I am cautious about any further disruption for Gibraltar post Brexit. The challenge that Gibraltarians face is going to be an exceedingly difficult one and, since the UK put Gibraltar into that situation, we ought to be sympathetic and supportive.

I understand the motives of the right reverend Prelate the Bishop of St Albans and others to increase transparency, but we are talking about what is best described as legal tax avoidance, not tax evasion. I hear nothing but widespread respect for the Gibraltarian tax authorities and the way they manage the business that falls under their supervision.

This is a dangerous time to deny another party equivalence when we ourselves are seeking equivalence from the European Union. I would point out, as others have done, that we have rather a low corporate tax rate at the moment. It is due to rise in the future, but we will still be at the low end of the G7. At the moment, we are exceedingly low compared to most of our EU competitors. We have also granted equivalence to the EU, and that includes locations such as Luxembourg and Ireland, which have low corporate taxes much more akin to those of Gibraltar.

So I do not think we have a major problem here. I am always glad to see an opportunity for transparency but, in this case, we are not looking at shutting down criminal activities, which is the area where I would like to see us work very hard on transparency. I think we need to be responsible to the people of Gibraltar, who sit in a position that is not of their choosing.

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[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

My Lords, the next speaker is the noble Baroness, Lady Bennett. The speaker after her, the noble Baroness, Lady Morgan, has withdrawn, so the speaker after the noble Baroness, Lady Bennett, will be the noble Lord, Lord Davies.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and I offer my thanks for his support for the concept of Amendment 12, to which I shall speak. It appears in my name and is kindly supported by the noble Lord, Lord Sikka, and the right reverend Prelate the Bishop of St Albans.

Amendment 12 seeks to secure a discounting of debt for people entering proposed statutory debt repayment plans—something that the noble Lord, Lord Stevenson, noted has already occurred in Scotland. I set out in Committee that that is a large group of people with incomes above those eligible for debt relief orders, but with assets and income generally below those covered by voluntary agreements on bankruptcy. All those other agreements operate in ways that can result in debt being cleared in a relatively short period, much shorter than those to be covered by statutory debt repayment plans. I will not repeat all that detail again.

However, this amendment represents a development of an amendment presented in Committee to secure a fair debt write-down in respect of debts sold on the secondary market. For that initial amendment and this amended one, I pay tribute to the large amount of work done by the Centre for Responsible Credit, from which noble Lords will have received a briefing. While a strong argument exists to support this proposal, entirely legitimate concerns were raised in the debate that the impact of such a move on the operation of the secondary market would need to be properly considered. The noble Lord, Lord True, also raised a concern about the need for equitable treatment of debtors in the scheme. Taking those concerns on board, this new amendment, rather than being prescriptive, is permissive in nature and seeks to ensure that discounts on debt are secured, where appropriate, with the full agreement of creditors.

Amendment 12 recognises that many creditors listed on debt repayment plans, regardless of whether the debt originated with them or they bought it on the secondary market, will often prefer to receive a lump sum as full and final payment as opposed to low levels of instalments spread out over many years. As a result, many creditors already offer a significant discount on the total level of debt if a lump-sum settlement can be made. While the StepChange debt charity has a dedicated team to provide advice to debtors concerning possible full and final settlements, not all debt management plan providers do so. There arises a potential conflict of interest, as SDRP providers are likely to be reimbursed on a percentage basis of the total debt collected. Securing discounts for big debtors would reduce their revenues.

This amendment would therefore ensure that the Government are provided with a power to instruct SDRP providers, where appropriate, to enter into debt settlement negotiations on behalf of debtors entering the scheme. Hopefully this is not needed, but it is important that such a power exists.

In addition, it ought to be possible for SDRP providers to go further. With appropriate funding and regulation, business models could be encouraged that would allow SDRP providers to themselves buy out, and therefore discount, debts registered on their plans. For example, in recent months we have seen instances of debt of £10,000 being discounted by as much as 40% in return for full and final settlement. Enabling such debts to be bought out and subsequently collected by SDRP providers would mean the debtor would have to repay only £6,900, even after taking into account a 15% fee for the provider. It should be possible to achieve a result that is beneficial to creditor and debtor alike. I stress that building this negotiated settlement approach into the SDRP is likely to be welcomed by creditors, who in many cases are already prepared to discount heavily for lump sums in full and final settlement.

It is not my intention to push this amendment to a vote at this stage, but I seek a commitment from the Minister to continue to explore and work on this issue. I hope he can commit to a meeting between the department and interested noble Lords to see how we can take this forward, possibly in regulation.

[Lord Davies of Brixton (Lab) [V]]

My Lords, I speak in support of Amendments 11 and 12. I do not intend to delay us particularly long at this time of night, but I want to take the opportunity to pursue an issue.

My involvement in the Financial Services Bill has been a learning experience for me, as a new Member, in the way in which we are able to progress issues through the course of a Bill and the opportunities arising at different stages to make points and develop what it is possible to achieve, as opposed to what we would like in a perfect world. I have made plain my support for a more fundamental debt jubilee, but that is clearly a discussion—a fight—for another day. The amendments before us today clearly provide a useful step forward—a small step, but one that is still worth while.

I want to say a word on behalf of the debtors, those people who have taken on debts for all sorts of reasons—some good, some bad. You cannot just look at the debtors in this situation and say, “That is where the problem arose.” Quite clearly, bad debts are part of the business plan of people who lend money. We have learnt to an extent during these debates that there are issues in how you develop a plan so that, when debts are discounted, it is not just commercial organisations that benefit and there is also the opportunity for those who have unwisely or mistakenly taken on debts to gain some advantage from the discounting of debts. That is really what we are trying to work towards here.

I support these amendments and hope the Government will be able to take on board the issues raised. The underlying issue—this is the point I have pursued before—is that there is a public interest in dealing with debt and relieving people of the debts they have taken on; it does not help just the individuals concerned. Lowering the level of debt and removing onerous debts help us all generally, and particularly at the moment when we are looking for an economic revival. I hope the Government take on board the ideas behind these amendments and work towards a scheme that helps not just the debtors but all of us.