Financial Services Bill

Lord Whitty Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Sassoon]

There are of course other amendments in the group but for the moment I will just speak to the two government amendments. New Part 12A of FiSMA, as inserted by Clause 25, confers on the regulators for the first time substantive powers in relation to unregulated parent undertakings of authorised persons. These new powers strengthen the regulatory framework by ensuring that the regulator can take appropriate action in relation to a parent undertaking that itself is not regulated but which controls and exerts influence over an authorised person.

Amendment 174ZA extends the meaning of “qualifying parent undertaking” so that the new Part 12A powers can also be applied to body corporates which have a place of business in the United Kingdom. At present, the powers are restricted to a parent undertaking that is a body corporate incorporated in the United Kingdom. There is a risk under the new Section 192B(2), as currently drafted, that some financial groups may be beyond the scope of new Part 12A powers or indeed may engage in regulatory arbitrage and restructure their operations to remove themselves from scope. Left unchanged, it would be possible for a firm to evade the powers by incorporating their parent undertaking overseas while retaining a place of business in the UK. It is important that the powers can be deployed for the purpose for which they were designed.

Amendment 174ZB is a bit of small tidying up of the drafting. As there is only one system of company law in the UK, it is not possible for a body corporate to be incorporated only in “part of” the UK. That is why we are making that second amendment. I beg to move.

[Lord Whitty]

My Lords, I am perfectly happy to accept and support the Minister’s proposals. My two amendments, and I think those of my noble friend Lord Tunnicliffe, attempt at this point to reflect the reality of the changing structure of banking and the potential changing structure of financial services, and their interrelationship with retail. It could go wider than this, but it specifically relates to the phenomenon of supermarkets obtaining banking licences, establishing banking subsidiaries and operating in the banking and financial services area.

This presents significant issues of consumer information and consumer privacy. My first amendment is a simple one. We have, in this Bill, a number of safeguards in relation to financial companies’ relations with their parent company. However, among other things, subsection (4) of the previous Act’s proposed new Section 192B defines a parent undertaking that is susceptible to these protections:

“Condition C is that the parent undertaking is a financial institution of a kind prescribed by the Treasury by order”.

It then goes on to say that those conditions can be changed by the Treasury. However, the reality is that Tesco—I am not particularly having a go at Tesco—would not fall within that definition. Yet Tesco will have a banking operation and has every intention of building on that. My first amendment would therefore delete that restriction, so that a parent undertaking of a financial company could, in fact, be a company of any kind and not simply one which falls within the Treasury’s—from time to time altered—definition of a financial institution.

My second amendment relates directly to the area of potential consumer detriment. Again, I take the example of Tesco. There have been examples in the United States already, so it is not necessarily directed at Tesco; I have a Tesco card myself, as I am sure many other Members of the House do. I would not presume that Tesco would be in a position, deriving data from my Saturday afternoon purchases, to offer to their banking subsidiary indications of my current or potential credit-worthiness. Noble Lords may feel that I do not need that protection, but there will be many who do. The pattern of purchases, particularly for the more vulnerable consumers, can vary dramatically from time to time as circumstances change. Their credit-worthiness can alter if the interpretation of that data is such that the banking subsidiary thinks that they are no longer as credit-worthy as they were last month or last year.

This is an issue of privacy. This is an issue of clarity. It is an issue of confidence that consumers who have quite happily allowed the retail parent company to acquire very detailed information on their purchasing patterns should not have that information used for the entirely different purpose of establishing credit-worthiness and the ability to seek loans, overdrafts or banking facilities from a banking subsidiary. I emphasise this because the change in the structure and interface between banking and large-scale retail and other conglomerates is likely to get larger. In broad terms, the consumer interest benefits from this wider competition and the expertise that it may bring. However, Tesco itself has recognised that one of the synergies arising from its move into the banking sector would be using the club card for credit assessments, and one which, alongside a loyalty scheme, could benefit the banking as well as the retail side of its business. I do not think that that is right. I do not think that the ordinary consumer who goes to Tesco every week would think that it is right. It is, of course, also a facility available to a banking subsidiary of a supermarket which is not available to its competitors, who are part of a purely banking or financial institution.

I hope that the Minister will recognise this problem, and will at least agree that the first deletion is appropriate and to take away the issue raised by my second amendment and come back to us at a later stage, indicating his way of dealing with it. It is an issue which, as I say, is likely to grow in importance and makes hundreds of thousands of consumers vulnerable. I do not beg to move, as the Minister has done so, but I hope that he will take my words into account.