Lord Hodgson of Astley Abbotts
Main Page: Lord Hodgson of Astley Abbotts (Conservative - Life peer)Enterprise Bill [HL]
Lord Hodgson of Astley Abbotts Excerpts(8 years, 6 months ago)
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Lord Mendelsohn
My Lords, in moving Amendment 20, I will speak to Amendments 21 and 22 and address some of the issues relating to Amendments 23 and 31, in the name of the ever-present and astute noble Lord, Lord Stoneham. This cuts to the very heart of what we are trying to get the commissioner to do: how the commissioner can operate most effectively and what some of the powers are that make the whole system work. This is very important to consider in the light of the narrow focus of the objectives in the short term and the hope that the office will establish objectives that will make a big difference to small business over time.
Amendment 20 would provide greater power for the commissioner to investigate and call for information. Amendment 21 would reinforce this by specifying the breadth of areas where they can call information from: government departments, local authorities, public sector bodies and companies. This is largely because there are very few powers available in the Bill, and the ability for another organisation to frustrate the commissioner is clear. So in our view, Amendment 22 is extremely important because it provides what is in a sense a lever which encourages people to go through a process of mediation.
The objective of the office of small business commissioner—in a sense, the classic design—is to enhance competition and a fair operating environment for small businesses. The investigation of small business complaints, business behaviour and facilitating the resolution of disputes form the core, whether or not that involves greater accessing of information and education, influencing government and their agencies to be much more focused on small business, or even acting as an advocate for government. But at its very core, the function of helping disputes gain some traction and thus resolve matters for small businesses is extremely important. These underpinning powers give it the force to make sure it can get to the heart of any matter, and that it has sufficient leverage to encourage some form of mediation. The Small Business Commissioner needs a power to encourage as well as to discourage.
The cost of a dispute for a small business is not just the financial costs but lost business and the cost of pursuing any resolution, such as legal costs. There is also a considerable opportunity cost, and a great deal of stress. The opportunity costs include what would otherwise have been achieved for the business in terms of time and effort. So, if a small business which is resolving a dispute takes someone out of the business, added to those costs is the disruption caused for the operators themselves.
Small business disputes face a particular difficulty, which is that they do not generally arise in the ordinary course of operating such businesses. They are periodic and emerge in unusual circumstances, and accordingly small business operators may not identify an emerging dispute until quite late on in the process, and might not have developed the skills to resolve the dispute. Through the early identification of emerging disputes, financial costs can be dealt with easily, incurring much less of a burden for both parties; and it also means that relationships that are critical to running small businesses can be maintained.
As we have seen with previous legislation, a small business commissioner and effective alternative dispute resolution operate speedily and at low cost. We would hope that the Government would consider mediation to be an additional tool that could be used over time. It is an informal and collaborative process and is generally of far greater benefit to small businesses, principally because it facilitates parties continuing their commercial relationships. Also, the potential costs of legal proceedings outweigh what small businesses would gain from the dispute. Long, drawn-out legal proceedings with the possibility of appeal may also hinder the parties so that they do not deal with each other commercially while the action proceeds, and the breaking of the business relationship is likely to persist. Accordingly, in alternative dispute resolution a strong emphasis is put on things which can be signposted by the Small Business Commissioner, such as those which they can supervise or take some sort of role in. This encourages the parties to be commercially realistic rather than intransigent, and to seek an outcome that is not 100% in favour of one side.
In order to create such a role, it is clear that some kind of lever is required. Amendment 22—my particular favourite—states that if one party is uncooperative or is unwilling to go through sensible mediation, the Small Business Commissioner can provide a commentary that will be taken into consideration when the question of costs is considered if that matter goes to litigation. Australia is a good and successful example of the use of this power, which helps to ensure that the parties come to a resolution. A small business can rack up massive costs when the Small Business Commissioner has reached a firm conclusion, and we have seen how resolutions can be reached over time much more collaboratively, in keeping with the intention of maintaining good business relations. That is not axiomatic; there are of course provisions for the court to take different views and provide protections, so that people do not game the system. But the notion that a small business commissioner, using their discretion, can ensure that someone comes to the table in a co-operative and collaborative spirit, and that all parties take a sensible view, underpinned by the idea that someone else will be accountable for costs, is a considerable and beneficial power.
All in all, we are hoping to the narrow focus of the Small Business Commissioner. The Bill already narrows who it covers, who it deals with and what it can do in general. The Small Business Commissioner, by the very definition of a small business—by the exclusion of large entities being able to contact it; by its roles and functions, its capacities and flexibilities; in providing no scope to deal with local authorities; by its staffing, its capabilities and the unusual power that the Secretary of State has to abolish it; and by its levers for enforcement and information—relates only to a small proportion of the type of disputes that can be dealt with. On late payments, it is already narrowed by the legal definition of the contract terms it can cover. It deals only with disputes with large businesses, even if large businesses are a consequent part of the step. It excludes the public sector and most contract term variations, along with anything that can go through an alternative complaint procedure.
As we near the end of these clauses, I am hoping that, while we have not been able to address such issues, the Minister might be sympathetic to giving the provision greater teeth and flexibility, so that progress can be made. I beg to move.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have some sympathy with this amendment. It offers the possibility of speeding up the process of resolving complaints. For the respondent—that is, the person about whom the complaint has been made—time is his friend. He has the money so the longer that he can spin it out, delay and obfuscate, the better. The complainant may lose heart and give up, but in any case in the mean time he hangs on for money. There may be occasions when the Small Business Commissioner says, “Actually, if we could get that particular piece of information, we could resolve this. We could cut to the chase and reach a resolution”. Up to that point, the respondent could have been trying to flatter to deceive, appearing quite helpful and giving lots of answers, but not actually giving the answers to the questions that were relevant to the point at issue.
I think that the noble Lord, Lord Mendelsohn, has made a good point. I would like to see us find ways in the Bill to facilitate the speeding up of this process by the Small Business Commissioner being able to cut through the Gordian knot—if he believes that such a situation exists—by requiring that information which has not been offered voluntarily can be compelled to be disclosed with a view to making his job and the whole process work more efficiently.
Lord Stoneham of Droxford
I, too, lend my support to this series of amendments. I have a particular interest in Amendments 23 and 31. I will not bother to repeat all the arguments made by the noble Lords, Lord Mendelsohn and Lord Hodgson, because I support them entirely. On Amendment 23, throughout our debates I have expressed concern that there just was not sufficient power or clout at the end of the process for us to encourage a resolution, and indeed to encourage people to complain. If someone is dealing with an intransigent company or organisation and they think there are no sanctions at the end of the line, they may well think there is not much point in raising the issue, because the company or organisation will continue to be intransigent.
Amendment 31 deals with the end of a process where it is clear to the commissioner that they are getting repeated complaints about a particular organisation, and it is failing to apply any of the recommendations they have made. At that final stage, the commissioner should have some power. I accept that this may not be completely refined yet, but I hope that the Minister can respond on that point.
The commissioner should have some final power to recommend to the Minister, the Secretary of State or whoever is appropriate that there might be some final sanction that can ensure compliance. This would give the complainant the motivation at the start of the process to get involved with the Small Business Commissioner, and the company that is the source of the complaint some incentive to resolve the matter. Otherwise, there is a danger that the credibility of the organisation and the work of the commissioner will be undermined.
Lord Mendelsohn
My Lords, I add our support for the first of the measures. I thank the noble Lord, Lord Stoneham, for introducing it into our discussions and the noble Lord, Lord O’Neill, for his excellent comments.
Amendment 30, in my name and that of my noble friend Lord Stevenson, would give the Small Business Commissioner a role in commenting on access to finance and to make a simple and straightforward case. A number of measures try to increase access to finance, whether they be the provision of overdrafts for very small businesses, forms of growth capital, older forms of asset finance, newer forms of peer-to-peer lending or other forms of finance. Many people look at these schemes and programmes; indeed, committees in this House, the Government and other bodies have looked at the performance of a number of the initiatives that are available and whether they give the right benefits and whether too much is taken out of them.
The purpose of the Small Business Commissioner is to take the perspective of a small business to try to find ways in which such schemes work to best effect on behalf of small business. In many ways, this is our thinly veiled attempt to enable the Small Business Commissioner to be the advocate of small businesses and to take a particular perspective that encourages the voice of those who require access to finance to come to the fore. Where the Small Business Commissioner is able to draw on the lessons learnt from resolving disputes—where there are broader lessons, challenges and problems—those comments can be made. Invariably, the problem is not just about cash flow. If you have a problem with cash flow, access to finance will be the crucial test of whether you are able to survive.
Lord Hodgson of Astley Abbotts
My Lords, I just want to say a word about Amendment 30, to which the noble Lord, Lord Mendelsohn, has just spoken. On Monday, at our first meeting in Committee, I said that I thought that the SBC role had been drawn in a way that is a bit too focused, but I say to the noble Lord that Amendment 30 would take that role well beyond the bounds of what the Small Business Commissioner should be doing. The comments that I made on Monday about payday loans apply equally here. This is not part of his competence. Hundreds of bodies and people make recommendations about how to improve finances for small and medium-sized companies. That is a serious issue, but it is not part of what he should be doing. He is focused on a different part of the field. I am sure that my noble friend will not accept the amendment, as plenty of bodies are looking into the provision of finance to small business and this would be a distraction from the commissioner’s central task, albeit that I still think that the central task is a little too narrowly drawn.
Baroness Neville-Rolfe
My Lords, I thank all noble Lords for their comments and the noble Lord, Lord O’Neill, for his humour and for his lessons in how to amend Bills, which will be useful when I return to the Back Benches.
We believe that the commissioner will be able to achieve maximum impact by publishing reports on complaints only if he or she has the discretion when to use this power in a targeted way. Amendment 25 would require the commissioner to publish a report on every complaint that he or she considers. We believe that that is unnecessary. The commissioner may, for example, consider a series of very similar complaints and may find that there is little value in compiling a report for each separate complaint when the activity could be captured instead in the aggregate annual report. In other cases, the complaint might have arisen from very particular circumstances, meaning that the determination had no wider application and was of little public interest. We believe that the commissioner should have the freedom to decide. This is a matter of his independence.
I turn to Amendments 26 and 27. A blanket approach of publishing the names of respondents, as set out in Amendment 26, has the potential to be unfair—for example, when a complaint is not upheld. It could indeed encourage mischievous complaints. Under this proposal, anyone who was complained about would be the subject of publicity. Giving the commissioner the discretion to choose whether to name the respondent will be a real incentive for businesses to work constructively with the commissioner, to pick up on the last discussion. We will see a real change in behaviour being encouraged.
The Earl of Kinnoull (CB)
My Lords, I too support the amendment in the name of the noble Lord, Lord Aberdare. I should declare my interests, and not only those on the register of the House—until earlier this year, I had been for 10 years or so a director of the construction bond insurance companies in the Hiscox group, as well as having been responsible for the bit of Hiscox which dealt with United Kingdom household insurances and which was therefore rebuilding the houses of our clients.
I congratulate the noble Lord on the thinking behind the amendment. This is an interestingly complex area. We have heard about the problem of bad behaviour, but the other problem is the failure of the various parties concerned to understand the credit risks involved in construction contracts. In the JCT standard construction contracts, there are provisions for payments of the retention moneys into trust accounts, which I suspect are never really honoured. That is a big area which should be looked at.
A lot of the business that the construction bond area of Hiscox dealt in was Irish. Ireland had a particularly severe construction dip following the financial crisis and there was quite a bit of evidence of what I would call the domino effect. A head contractor would get into financial difficulties and would drag down a lot of smaller contractors and, because trust accounts were not in place, the smaller contractors lost out. Given the Government’s theme of trying to give every help to the small and the brave, I believe that this could be dealt with. It would not be expensive and could easily benefit small businesses quite a bit.
Lord Hodgson of Astley Abbotts
I have a lot of sympathy with the amendment but, unlike my noble friend Lord Cope or the noble Lord, Lord O’Neill, I am interested in what happens at the end of the contract, when retention moneys and liquidated damages wash one into another. The concept of liquidated damages is perfectly fair. It is designed to make the main manufacturer finish on time; if he fails to do so, a penalty is attached. Of course, the main contractor then passes the penalty on in his subcontract. This can mean that the penalty in relation to the value of the work of the subcontractor can be very small indeed, and that the retentions become commensurately large.
For example, take a company bypassing a piece of road with liquidating damages of maybe several thousand pounds a week for delays beyond the contract date, and a subcontractor whose job it is to put up the signage at the end. The chap who does the foundations is a bit late; it is a very wet, cold and rainy winter so the earth-moving is behind; and the spring is late in coming so the tarmac cannot be laid. By the time the small firm that was subcontracted to do the signage comes to do its job, it is very close up against the end of the contract date. Of course that firm is carrying in its contract the liquidating damages sum for the contract as a whole, which has been passed on to it. In these circumstances, retentions can very often be withheld against the completion of the contract as a whole, in case it is argued that the subcontractor played some role or part in the overall delay. The fact that he may have had an incredibly small amount of time to do his work because the people before him were delayed is of course something to be argued about by lawyers, and it is hard for small subcontractors to have sufficient equality of arms.
As we begin to develop this idea, I hope that the issues of liquidating damages and how they impact in contractual terms on small subcontractors can form part of the retention-moneys and withholding-of-sums-due concerns.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their amendments and their constructive contribution to the Bill. I am delighted that the noble Baroness, Lady Hayter, and the noble Lord, Lord Low, have joined the debate.
As has been said, the amendments would ensure that the EHRC could not be subject to, or required to report on, three key regulatory policies: the business impact target, the growth duty and the Regulators’ Code. Extending the business impact target to statutory regulators is a key part of Government’s aim to ensure that regulators across the board continue to achieve high standards of regulation in order to drive growth and ensure a strong economy. I think we have agreement on that broad principle.
However, although we are asking regulators to be transparent in reporting the impact of their decisions on business, the Bill will give us no powers to interfere in the decisions they take. There is a clear distinction to be drawn. The fact that a regulator may not be aimed at business does not mean that the regulator does not affect business or the voluntary sector. To my mind, there is nothing wrong with having an incentive to look at the impact of the way you design measures to ensure that, for example, they are constructed in a sensible way for small businesses. Regulatory independence of course underpins business confidence, and is vital to all regulators—it is not only true, as has been said, for the EHRC.
We have seen the EHRC’s briefing note on these issues, which says that it produces approximately 30 pieces of guidance a year and operates across the whole economy. So the range of business making use of the guidance is very substantial. For all those businesses to keep track of that guidance is a cost to business. Sometimes it can outweigh the cost to the commission of assessing the impact as and when it issues new guidance.
I know from experience that the EHRC issues very valuable guidance—for example, the religion or belief guidance for employers issued in 2013. I remember when I worked in the retail sector talking to the EHRC about what it might do to address concerns it had among big employers. So there is an interaction. It is important work, but obviously there is a need to ensure that the guidance is appropriately prepared for business and minimises the burden of any such directions. I hope that the EHRC will look carefully at its relationship with business and ensure that it reflects on the cost which it is imposing. This is what inclusion in the business impact target would achieve and why we have proposed it.
The EHRC—I am not sure people are aware of this—is already within the scope of the Regulator’s Code and is also covered by its predecessor, which was introduced in 2008, by the then Labour Administration. I understand that the EHRC already complies with the code and is transparent about its activities reporting annually. That transparency is just what Clause 14 is aiming to achieve. In practical terms, it will make little difference to what the EHRC currently does, which is why I am not convinced of Amendment 48F.
Amendment 49C prevents the reporting requirements for those in scope of the growth duty from applying to the EHRC. We had the debate less than a year ago when considering the growth duty. The Government’s initial view was that the duty should apply. However, in the light of debate and representations from your Lordships, we undertook that the EHRC would be excluded. I am happy to repeat that the Government will not seek to apply the growth duty to the EHRC. I want to be completely clear about that. The assurances were sufficient for your Lordships in the last Parliament and I hope they will be sufficient again.
The key reason given for excluding EHRC from these three policies, as far as I can see, is that it might prejudice their international A status as a human rights body, which is obviously incredibly important. However, there is not a risk with the growth duty, as it does not apply to the EHRC nor does the EHRC have a small business champion for the reasons that we discussed last time and on which the noble Lord quoted me. We know it is not the case with the code, because it has applied successfully to the EHRC for years, and it has been accredited internationally while it has been in place.
The business impact target is a transparency measure. It does not fetter the independence of the regulator to make its own decisions in relation to the changes it introduces. Inclusion in the target would require EHRC to measure and report its impact on business, and have the figures validated by the RPC. The RPC is not government, as we discussed, it is a body of independent experts and looks only at the evidence and analysis.
The noble Baroness, Lady Hayter, talked about the Charities Commission. The point has been made that it does not affect business. However, the business impact target covers the impact on both the private sector and the Third Sector. The Charity Commission certainly affects the third sector. We will consult in the new year on the list of regulators and welcome the views of Peers and regulators. We are trying to reduce red tape in life; reduce red tape for small business. I believe that a lot of charities—the noble Baroness may play this back at me on another occasion—have quite a lot in common with small businesses.
How does the inclusion of the Charity Commission help those who donate? In her inimitable way, the noble Baroness, Lady Hayter, talked about the consumer. Including the Charity Commission would encourage it to minimise burdens on charities ensuring, I would say, that more of donors’ money benefits good causes rather than being tied up in meeting the commission’s requirements.
There was also a point in Amendments 56 and 57 on retrospectivity. The focus of concern is the potential to change the legal effect of actions already taken.
Lord Hodgson of Astley Abbotts
The Minister might like to look at the statutory objectives laid down in the Charities Act on the Charity Commission and its effective operation. We may get into duplication here. Five statutory requirements have to be complied with, one of which certainly overlaps. Unfortunately, I do not have the Act with me and I cannot remember the precise wording, but it might be worthwhile looking at it, otherwise, we may get a degree of duplication. Perhaps the Committee can come back to that.
“(c) details of the activities, including the costs, of any organisation employed to undertake work on behalf of the regulator”
Lord Hodgson of Astley Abbotts
My Lords, this is a probing amendment directed at the same clause as Amendments 48H and 48G from the noble Lord, Lord Stevenson. It is about the performance report of the regulators. The amendment seeks to add a requirement that the report should contain information relating to work undertaken on behalf of the regulator in the execution and performance of the regulatory duties.
It is obvious that the activities of a regulator come at a cost: there is the cost to the regulator itself in terms of its own budget and the cost to those that it regulates, either the direct costs or the hidden costs, such as having to set up systems to ensure compliance. Obviously all this can be a considerable economic burden, and it is therefore extremely welcome that the Government have emphasised in the Explanatory Memorandum, and indeed in the Bill, the importance of regulators having to have regard to the promotion of economic growth and to report thereupon.
One of the ways in which it happens that regulators are kept under control is that they have a budget within which they have to live. This forces a degree of focus by the regulator on the essential aspects of its duties; in effect, it concentrates them on the must-haves rather than the nice-to-haves. I am concerned that there may be ways for regulators to avoid these budgetary constraints and instead end up with a great deal of nice-to-haves that may not have a commensurate cost-benefit relationship.
I have explained this to the Bill team because it is quite a specialist point: in the Financial Services and Markets Act, which I am using as a practical example, Section 166 is called “Reports by skilled persons”. Section 166(1) says:
“The Authority may, by notice in writing given to a person … require him to provide the Authority with a report on any matter about which the Authority has required or could require the provision of information or production of documents”.
That is a very widely drawn section, and Section 166 inquiries have become very prolific in the financial services area. There are organisations that have several of these running. The regulator comes along and says, “We’re not satisfied about this aspect of your operation, and under Section 166 we instruct you to get a skilled person to provide an independent report on it”. The skilled person will be an accounting firm or maybe a lawyer. The regulator continues: “The report is to be sent to us and the bill is to be sent to you, the firm”. These reports will cost probably a couple of hundred thousand pounds by the time they have reached the end of the road.
This means that there is no financial constraint on the regulator because the regulator can pursue issues without concern as to the operational impact on their own organisation. I accept that the wording is almost certainly imperfect, but the amendment is designed to require regulators to disclose when they are subcontracting regulation so that we can have an independent idea of what they are spending outside their own budgets. I am not saying that the regulator should not be able to do that, but I am anxious to make sure that proper disclosure takes place. I am not sure whether other regulators—I have given the financial services sector as an example—are engaged in the same practice. Of course, it is challenging to get the drafting right because these additional costs are invoiced to the regulated firms, not to the regulator.
There is an issue here that needs addressing if the Government are to achieve fully their welcome objective of getting a regulatory system that is focused and effective but run with regard to the costs being incurred. I beg to move.
Baroness Neville-Rolfe
I thank my noble friend for tabling this amendment, which seeks to include in the Bill a specific reporting requirement for regulators subject to the code to provide details of the activities, including costs, of any organisation employed to undertake work on their behalf. At the heart of the amendment lies a concern about the hidden costs to business. The example that he gave was that financial service regulators may seek to discharge their regulatory functions by using their powers to commission reviews by “skilled persons” and charging the businesses concerned for the cost of that work. As I understand it, that is at the heart of the problem that my noble friend has identified.
My noble friend is right to seek transparency and accountability about how these powers are used and I think that we have made some progress in this area. Both the FSA and the PRA now routinely publish information on their Section 166 Financial Services and Markets Act 2000 activity. This includes quarterly reporting on the number of skilled persons reports that they have commissioned and annual reporting on the aggregate costs of these reports. As my noble friend probably knows, this information is available online. It seems to me that the disclosure that he seeks is being addressed and I am not sure that there is harm elsewhere that justifies creating new regulation in this area. In the interests of brevity, I do not see a case to amend the Bill and ask him to withdraw the amendment.
Lord Hodgson of Astley Abbotts
I am grateful to my noble friend for that full response. One of the questions is, of course, that I just happen to know about the financial services area, where there are lots of regulators that we are considering as part of this section of the Bill. It would be helpful if we could try to ascertain whether other regulators are engaged in the same process because it enables them to add to the regulatory burden very considerably. I am grateful for the comments and the further research that the Bill team have done on this matter and I beg leave to withdraw the amendment.
Lord Mendelsohn
My Lords, I should declare at the start of these amendments that I am regulated by the FCA, so this is actually terribly in my interest. This relates to being able to give small business some guidance. Very briefly, money-lending regulations apply to a whole range of small practices ranging from financial and credit services, accountants, lawyers, estate agents and a number of others.
As ever, the regulations are quite complex within this context; there are duties to assess the risk of the business, your own business activity being used by criminals, who you are conducting business with, checking the identity of beneficial owners, monitoring their business actions and reporting on management control systems, or keeping documents and making sure that you are training your employees. I am bound to say that as ever, these obligations on companies that try to comply are very hard on them indeed; small businesses in particular find that very tough. For those who have no intention of bothering to comply with them it is exceptionally easy; I cannot say this comprehensively, but in cases that I checked the fines are significantly smaller than the costs of having to comply by having a compliance adviser or other sorts of people.
We therefore hope that the Small Business Commissioner will be able to play a role here to help define what is good activity rather than the constant uncertainties that happen, especially over something such as this. Is it sensible for a small business with two or three people in one of these areas to have to phone up the company secretary at a FTSE 100 company to say, “Can I have the passports and identity checks of your company directors?” and to have to carry on referring them in those sorts of circumstances? Perhaps this may not be a formal role, but this now famous annual report may well have some provisions which will be helpful to at least simplify this for small businesses.
Secondly, on awareness of share sale fraud—I apologise that we may not have drafted this to the most exacting standards that we would otherwise have liked to have done—I will try to give noble Lords the thrust of the measure. Again, small businesses are particularly vulnerable to a number of frauds that take place where people try to sell bogus financial services and products and other sorts of things. This affects areas where online fraud is established or verified through the use of things such as addresses or other sorts of things as well as when online and offline meet. We are trying to give the regulators some ability, obligation or duty to communicate; hopefully the back end of how that might work best for government would be between the enforcement agencies and the regulators. I will give a great example, which was, of course, when City of London Trading Standards sought a conviction against Regus Management, which housed just the address of a particularly fraudulent scheme. When contacted by—on this occasion—consumers, the company said that its offices were based there, when, of course, it was just a postal address. Just by saying that it was based there gave it a credibility which led to a couple of people being defrauded.
It is also very useful to know that the police are now enforcing a crackdown on boiler room fraudsters in the City of London and Canary Wharf. This is good practice; we would like to encourage regulators to get the message out so that there is reasonable coverage across the rest of the country. This is just about trying to place a duty on them to try to make sure that something can be done to help support small businesses across the country. I beg to move.
Lord Hodgson of Astley Abbotts
I cannot resist, although I know that the Committee is like a horse heading for the stable, therefore I shall be very brief indeed. On the comments made by the noble Lord, Lord Mendelsohn, on money laundering, this area has a life of its own, and the impact on smaller businesses is stupendous and without any real evidence of any efficacy whatever. This area is still growing, and the tentacles of bureaucracy are widening all the time, therefore the burden will be greater. I therefore very much support the idea that we take any steps to make sure that it is effective—not that we should not do it, but that it is effective. That is the thrust of the noble Lord’s Amendment 49B and trying to make sure that we try to prevent the further spread of this. I have today received a request about money laundering from my clearing bank. When I left university in 1964 I went to work in America. The bank has written to me saying, “We see you worked in America in the 1960s; tell us what you were paid as part of our money laundering investigation”. What that can possibly add to its knowledge of me 50 years ago I cannot possibly imagine. If you use the term “money laundering” everyone says it must be a good idea. It will require a big effort to make sure that we are effective. The question is: are we stopping people doing these terrible things, not just spraying information around and ticking boxes? Therefore, all power to the Minister.
Baroness Neville-Rolfe
My Lords, I share the sentiment behind Amendment 49B to ensure that regulators have regard to the needs of business when dealing with money laundering requirements. As I used to say when I was on the Back Benches, the regime was excessively burdensome and some businesses feel confused by overlapping or restrictive guidance. However, these concerns cannot be addressed by simply looking at how regulators deal with small business. There may be examples of requirements that are particularly difficult for certain entities, but it is the interactions between different types of business and with the banks that is at the heart of the problem. So small companies with innovative business models or ways of complying with requirements, to know their customers, may find it difficult to maintain business relationships with large banks which do not understand how a particular model works. The bank may simply decide not to do business, rather than expose itself to the risk that the small company is being used for money laundering.
Difficulties can be caused by the guidance that is produced by the various regulators and supervisors. That is why we are looking at the regime in the round. We are now running a Cutting Red Tape review of money laundering controls. It is important that companies that are genuinely confused about what they need to do have this confusion addressed. Our call for evidence is open until 6 November—my husband is planning to send sacks of stuff—and we are keen to speak to all NGOs, businesses and trade associations with an interest, particularly SMEs.
We want to examine more seriously the potential to improve compliance and efficiency, by identifying aspects of the good supervisory regime that appears to businesses in the regulated sector to be unclear, cumbersome, conflicting or confusing. We are already speaking to a broad range of sectors and we would be very pleased to have examples from your Lordships. The Government understand that the regime can be improved. We published the first national risk assessment for money laundering and terrorist finance risks on 15 October and one of the findings was that the supervisory regime was inconsistent. We accept that this needs to be addressed.
The evidence being gathered by the BRE will help to inform work under the Government’s action plan to reform the regime and to ensure that it is consistent; treats large and small businesses sensibly and proportionately; and follows a truly risk-based approach allowing resources to be targeted at the areas that are at greatest risk of money laundering and terrorist financing. These are also important policy objectives which must not be forgotten in today’s discussions.
I hope that gives some reassurance. I have a good deal of excellent detail on Amendment 49D in relation to investment fraud, but given the lateness of the hour, I wonder if the Committee would like me to write about that. I think it means that we do not need to amend the Bill, but a lot of good work is being done by the FCA which I would like to share with noble Lords and give more publicity to in order to get after the scammers. I hope that the noble Lord will feel able to withdraw his amendment.