Financial Services and Markets Bill

Baroness Hayter of Kentish Town Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I declare my interest as a board member of the Association of British Insurers. I apologise that I was not able to speak at Second Reading. I had my name down, but unfortunately had to scratch because of a commitment from the committee that I chair.

I speak very briefly on Amendment 65 in the name of my noble friend Lord Tunnicliffe—I was not going to, because I am sure that he will explain it, but as it has sort of been challenged already, I thought it would be useful to bring the Committee’s attention to the view of TheCityUK. On the secondary objective, it says that economic growth and competitiveness would remain subordinate to the regulatory primary objective of promoting competition, preserving stability and protecting consumers. TheCityUK thinks that is the proper place for it. I think my noble friend may explain that his was more of a probing amendment, but certainly I hope that the Committee is of the view, along with many of us, not just TheCityUK, that primary means primary and secondary means secondary, and therefore that the primary will always trump the secondary.

Financial Services and Markets Bill

Baroness Hayter of Kentish Town Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

The really telling sentence in her letter was where, having explained the approach that she has agreed with the FCA and the banks through His Majesty’s Treasury, she said that a similar approach was taken when these issues originally occurred in 2017 and that this was widely agreed to have been an effective solution. It stopped working; somebody forgot about it. It works only as long as the pressure is on. That sort of approach might be a sticking plaster for a year or two, but it does not address the fundamental problem: we are way exceeding our international obligations, there is no call on us to do so and, in doing so, we are inflicting considerable harm on a lot of people when there are probably really bad people out there on whom resources would be better focused. We need to change the law. This is a good opportunity to do it. I look forward to the debate and beg to move.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I will speak to my Amendment 224 and to others in the group, including the ably moved Amendment 215, to which I have added my name.

I thought that this had been going on for a long time, but the 11 years on the sharia law amendment was even longer. This started only a decade ago, when the noble Lord, Lord Flight, raised it in 2013. Then the noble Lord, Lord Clement-Jones, raised it in 2014 and the noble Lord, Lord Flight, and my noble friend Lord Harris raised it in July 2015. I had a Question for short debate on it later in 2015, at which point the Minister at the time, who subsequently became Chief Whip—although he is no longer—completely understood it, partly because it had affected him, as he said in the debate. It was also covered in the Mail on Sunday, because Charles Walker had raised it in a debate in the Commons in January 2016. I also had a Written Question in March 2016. If we say that we are doing this quickly, I just remind everyone that this has been going on a very long time.

The problem is that neither the FCA, to which I wrote back in 2016, nor the Treasury has actually moved to lift the burden on us normal PEPs, despite the FCA’s July 2017 guidance which, if it was complied with, would solve the problem—but it has never been complied with. Since that guidance, which is FG 17/6, we have continued to raise the issue in the House—on 6 September 2021, 22 February 2021, 3 March 2021, 24 and 25 November 2021, 5 July 2022 and 28 November 2022. So there should be no surprise at anything that is being said today.

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[Baroness Penn (Con)]

My Lords, the Government have a lot of sympathy with noble Lords who feel that they or their families have been subject to unreasonable treatment due to their status as politically exposed persons, or PEPs. As noble Lords have mentioned, I have engaged with noble Lords to understand this issue and I am aware that the difficulties faced can range from seemingly disproportionate requests for information to accounts being blocked, leaving Peers and their family members at risk of being unable to effectively manage their financial affairs.

The Treasury and the FCA will continue to work to address this issue and to ensure that those subject to these rules are treated fairly and proportionately. Before discussing that work further, I will set out the importance of the PEPs regime to UK security and the fight against economic crime.

Enhanced due diligence by banks is a key component of the UK’s anti-money laundering and anti-corruption measures, and ensures that any suspicious activity is identified and reported to law enforcement. Given the potential for the positions of influence held by those subject to the PEPs regime to make them targets for serious and organised criminals and hostile state actors, law enforcement agencies have strongly favoured maintaining these requirements on domestic PEPs. The enhanced due diligence measures are a crucial part of the UK’s anti-money laundering regime and contribute to a coherent, systemwide approach to tackling economic crime, providing law enforcement with valuable and actionable intelligence to help protect the UK’s political system from hostile state actors, for instance.

However, the Government of course recognise that domestic PEPs often represent a lower risk than overseas PEPs. This is already explicit in FCA guidance, which states that domestic PEPs should be treated as lower risk by financial institutions unless other risk factors are present. The FCA remains committed to monitoring banks’ compliance with its guidance on PEPs, and will take action where it identifies systemic issues. The FCA did so last year, resulting in one financial institution apologising to all PEP customers after its failure to adhere to FCA guidance.

In last year’s review of the money laundering regulations, the Government committed to an assessment of the risk profile of domestic PEPs and made it clear that we would consider removing the requirement for mandatory enhanced due diligence if they were found to be sufficiently low risk. The Government’s assessment of the risk profile of domestic PEPs has concluded. As part of that work, they engaged with law enforcement and other operational partners to develop their under-standing of the risk posed by domestic PEPs. In light of that review, the Government consider that the existing requirements remain appropriate.

However, given the concerns raised, the Government will continue to work with the FCA to ensure that banks and other financial institutions appropriately and proportionately implement the guidance set out by the FCA regarding the treatment of domestic PEPs, that it is taken forward in a way that is proportionate to their individual risk and that adjustments are made to enhanced due diligence measures as necessary. I would like to reassure noble Lords that the Treasury continues to engage with the FCA on this issue and stress the importance of taking a proportionate, risk-based approach to the application of enhanced measures on domestic PEPs.

I turn to the specifics of the amendments. Amendment 215 from my noble friend Lord Moylan would remove those politically exposed persons who are tax residents from the regime entirely. As I have set out, including domestic PEPs in the regime is important because of the risks presented by their positions of influence. Such a proposal would weaken the UK’s protection from money laundering and corruption and leave us non-compliant with international standards. International standards for domestic PEPs, as my noble friend set out, are set by the Financial Action Task Force. They require countries to implement a legal framework that compels regulated firms to identify whether their customers are domestic PEPs and make an assessment of which due diligence measures to apply based on the risk presented.

Amendment 215 would remove the requirement for financial institutions to identify and treat those resident in the UK for tax purposes as PEPs, making the UK non-compliant with those international standards. The UK is a leading member of the Financial Action Task Force and was recognised in its mutual evaluation report in 2018 as having the most effective anti-money laundering regime of well over 100 countries assessed to date. The UK remains committed to ensuring that its anti-money laundering regime is compliant with these international standards. While I appreciate that, in drafting their amendments, noble Lords may have sought to remain compliant with those standards, I am afraid it is not possible to remove domestic PEPs from identification altogether and remain compliant.

[Baroness Hayter of Kentish Town (Lab)]

Why is it therefore possible to exclude councillors, as the guidance does, but not Peers?

[Baroness Penn (Con)]

That is a question of who is classed as a domestic PEP, not of the need to have a regime in place to identify domestic PEPs and then look at what enhanced due diligence measures should be applied to them.

[Baroness Hayter of Kentish Town (Lab)]

Does the Minister accept that we could therefore exclude all Members of Parliament?

[Baroness Penn (Con)]

I do not think that would be consistent with the Financial Action Task Force guidance that is interpreted at a UK level.

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[Baroness Hayter of Kentish Town (Lab)]

I am sorry, but the Minister said that we are a leading member of the Financial Action Task Force. It has been enabled to take councillors out; it is very hard to imagine that Members of this House could not be.

[Lord Moylan (Con)]

I know the answer to this. It is because the FCA said in 2017 that a council was not a parliament or similar body. Those words appear in the task force recommendation. By declaring that a council was not a parliament or a similar body, members of councils immediately fell out of the regulatory scope by virtue of the guidance as it was changed at that time.

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[Baroness Penn (Con)]

As I said, I shall take away the point about what further I can say about the work on the risk assessment. The focus has been on looking at risk, and my understanding is that, in considering that, the question of close associates or family members—I believe that is the terminology in the regulations—has also been considered.

[Baroness Hayter of Kentish Town (Lab)]

I am sorry about this, but the Minister will not be surprised, because we have had 10 years of this issue. There was a review last year, which she reported on in the House, which said that no change was needed, which is extraordinary. She referred to the case where we all got an apology, but that was only because we kept on standing up and asking for it, otherwise it would never have happened.

The important thing that I wanted to raise is that this somehow is going further than anti-money laundering—it is about general corruption. Some of us have been debating the National Security Bill, where it is being dealt with in another way. I do not think that the Minister has been following that Bill, but I can understand that she has not because she has been involved with this one. We now have the FIRS scheme, which will be set up when the Bill becomes an Act and which is about the other things—the approach to politicians by malign forces trying to corrupt us, or whatever. So can we take out corruption and that sort of thing, because the National Security Bill will deal with that? This is simply to be simply about anti-money laundering—in other words, dirty money.

A lot of what the Minister has said goes beyond that, and the fact that she cannot tell us means that the spooks—who tell us that they do not want it, by the way—want it for some other cause. That is not the purpose of the provisions on anti-money laundering; it is about dirty money. Perhaps the Minister could talk to the Home Office and Tom Tugendhat about how much is covered now on the approach to any of us as politicians by malign forces, because this is separate.

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[Baroness Penn (Con)]

The Government believe that the decision about the scope of the money laundering regulations is best taken by, and should remain with, the Government, rather than being delegated to the FCA.

I turn to Amendment 224 from the noble Baroness, Lady Hayter of Kentish Town. This would require the FCA to consult with consumers with regard to its functions relating to PEPs. In the discussion—

[Baroness Hayter of Kentish Town (Lab)]

The noble Baroness does not need to respond on this; it was a placeholder.

[Baroness Penn (Con)]

Okay—I was going to talk about the engagement that we have conducted so far and will continue.

My noble friend Lord Trenchard touched on my noble friend Lord Forsyth’s Amendment 234, but I am not sure whether anyone spoke to it specifically. In my response, I addressed the Committee’s desire to focus its attention on the statutory changes, and I am not sure we had a detailed discussion on the other proposals put forward here.

Noble Lords have made their position on the issue very clear. I hope that, to some extent, they have also heard the rationale for the Government’s approach and would agree with the desire to be in line with international standards in any action that we take in this area. As the noble Lord, Lord Tunnicliffe, said at the start of his remarks, we should bear in mind the context of the Government’s efforts, very much supported by this House—we are often pushed to go further by this House—in tackling issues of economic crime, which include money laundering. We have to recognise that London and the UK being such a centre for financial services, and the great benefits that that brings, also brings greater risks. It is right that we make sure that we have a regime that manages those risks as effectively as possible.

I shall write to noble Lords on the matters that I have mentioned, and any other matters in looking at this debate again, on which I can provide further clarity. I am sure that I will engage with noble Lords further on this issue ahead of Report.

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[Baroness Penn (Con)]

The noble Lord is absolutely right to say that. This Government are committed to do that with the regulator. I understand this Committee’s desire to look at legislative change, but I have also heard from the Committee that the guidance is clear on the lower risks of PEPs, and the challenge really lies in the effective implementation of that guidance. We should not take our eye off that work. It is something that the Government are absolutely committed to doing.

I know that noble Lords have raised the challenges of engaging with the FOS on this issue, but I remind them of that route. I have also said to noble Lords, as the FCA has said, that in the list of contacts that we have provided to parliamentarians with issues with their status as politically exposed persons, the FCA will monitor any of those points of contact in terms of complaints to look more systematically at whether there are issues in individual institutions so that further action can be taken on that basis. The Treasury will continue to engage with the FCA on how we can ensure that that takes place.

[Baroness Hayter of Kentish Town (Lab)]

I think that we have already mentioned why the FOS is so inappropriate. To expect a judge to take a complaint to the FOS is frankly out of order. It is no way for this issue to be raised. It is a very small number—but it is not appropriate to ask very senior judiciary to go via FOS, if their children are being affected. That is really not the right way forward.

[Baroness Penn (Con)]

I appreciate that it will not be the right route of recourse in many circumstances, but I do not agree that it is never the right form of recourse for people. It is important for people to know that that route is there. For particular cases, it may be appropriate. The noble Baroness has set out why, in many other cases, that is not the form of recourse that people want, which is why we have also set out other points of contact and ways in which to try to resolve these issues, which also act as a data point for the FCA as the regulator to look at issues in particular banks or institutions that are not applying the guidance appropriately.

Financial Services and Markets Bill

Baroness Hayter of Kentish Town Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[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.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, in general I support all the amendments in this group. I am particularly pleased to see government Amendment 50 on the panel reports, assuming that they are implemented, and government Amendment 63 and its companions in the next group to require the regulators to state how they have taken account of parliamentary committee reports in rulemaking. I thank the Minister and the Bill team for covering some of the amendments that I tabled in Committee and similar ones from other noble Lords.

In this group, I have added my name to the amendments tabled by the noble Lord, Lord Bridges, which concern the setting up of an office for financial regulatory accountability, as I did in Committee. The noble Lord is unable to be here today and has asked me to give his apologies and to introduce his amendments.

There is no need to go through the debate that we had in Committee, except to say that since FSMA 2022 there has been a growth in voices calling for an independent oversight body, including the main industry bodies. Those bodies were somewhat disappointed by the Minister’s suggestion in Committee that there was no industry support or suggestion along those lines, because they have made their views clear. I have received emails assuring me that they put points in the consultation responses as well as in published industry papers, although I acknowledge that those were early days and they may not have got as far as formulating ideas in the same way that I had in my consultation response.

There has also been a growth in support in this House. As has been said, if we had campaigned during the Brexit referendum that there would be this massive amount of power going to government, which would then be pressed onwards to unelected regulators, maybe some people would have had different thoughts, but that is water under the bridge. Going back to the amendments tabled by the noble Lord, Lord Bridges, the suite of amendments that cover the office for financial regulatory accountability—Amendments 64 to 72—includes some useful amendments from the noble Lord, Lord Eatwell, with which the noble Lord, Lord Bridges, agrees.

Financial Services and Markets Bill

Baroness Hayter of Kentish Town Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

I appreciate the efforts made by my noble friend and I have confidence in her, but we should be clear about the standards against which we will judge whatever the Government come back with over the next 12 months. My amendment does that, along with the other comments I have made, but, in the meantime, I will not be moving it.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, it is exactly three months ago today that we debated this issue in Committee, when the Minister heard many examples of what had been going on. She has done rather more than any of her predecessors in acknowledging that there is a problem with how the AML rules are applied to PEPs and that change needs to happen—but she has gone even further and done something about it. I will not say that it is simply because she is a woman and that is what we do, but it is interesting that she has done it. As we heard, she has tabled Amendments 96, 97, 118 and 119, which she has outlined.

I have added my name, as the noble Lord, Lord Moylan, said, to Amendment 105, which goes a bit further and is more specific than the Government’s amendment. Ideally, they might have accepted it and made a carve-out for our family members; as we have heard, we may be guilty because we are here, but they have done nothing wrong and it is awful that they are caught by it. So I welcome the Minister saying in her introduction that the review will specifically look at whether it is possible to tweak that somewhat.

As I said in Committee, this has been going on for rather a long time. The noble Lord, Lord Flight, was the first noble Lord to raise it that I could find, in 2013, and I have been on about it since 2015, as the House knows. We have had Written Questions, Oral Questions, meetings, press coverage and all of that. In addition to the inconvenience for us, this has also meant that all these banks and others are wasting their time looking at our business instead of, as we have heard, at some other people. It is not just Amex and others; it is car purchase firms and everybody else inconveniencing us and wasting their time.

The Minister has acknowledged that it is time for legislation. The key part of her proposal is distinguishing between domestic and foreign PEPs and a requirement both on HMT and the FCA to do something. What the Government have done may not be perfect, but it is a real step forward. I think the Minister is well aware that we will keep a rather beady eye on what is happening, and we will be back here if nothing changes.

In the meantime, we should thank the Minister for what she has done. We have made a big step forward and I am delighted that the noble Lord, Lord Moylan, will not be pressing his amendment. It is right that we accept where we have got to with the Minister, and we will watch that being implemented.

[Lord Sharkey (LD)]

My Lords, I have added my name to Amendment 105 in the name of the noble Lord, Lord Moylan, and I congratulate him on his determination and persistence. I do not quite understand his dislike of Turkish barbers, but we can deal with that some other time.

His amendment’s simplicity and its direct modification of the regulation is an appealing approach, as is the absence of the word “review”. I was very pleased to see the government amendments in this group, chiefly because, of course, they are government amendments. I am very grateful for the Minister’s clear and long-standing commitment to resolving, or at least ameliorating, the problem. I have only a couple of observations about the government amendments.

The explanatory statement to Amendment 96 says that UK PEPs

“should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them”.

The amendment itself, in proposed new subsection (3)(b), states that

“if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non-domestic PEP”.

Neither of those offers a definition or sets an upper limit to what this lesser form of due diligence should be. Is that decision to be left entirely to the financial services companies? If it is, can we reasonably expect uniformity of definition and behaviour?

Why would we expect the banks to significantly change their current behaviour? Would it not be more likely that they will simply water down some minor aspect of the diligence they currently feel is due and carry on otherwise much as they do now? In a way, that is what is happening anyway. The banks mostly ignore the FCA’s current guidance, as set out in paragraph 2.35 of FG17/6. The FCA, in response to that, applies no sanctions. Nowhere in the government amendments is there mention of sanctions for non-compliance with the new arrangements.

Given the rather cavalier disregard some banks have displayed towards the current guidance, do we not need some sanction for future non-compliance, or a way of making the FCA properly enforce its own guide- lines? What use are guidelines if they are not enforced? I would be very grateful if the Minister could say how a workable definition of “lesser due diligence” is to be arrived at and how the new regime may be enforced.