Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 8th June 2021
(3 years, 5 months ago)
Commons ChamberCompensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Watch Debate
This text is a record of ministerial contributions to a debate held as part of the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
I beg to move, That the Bill be read a Second time.
In the United Kingdom there are a wide range of opportunities for people to invest. The Government’s role is to try to ensure that the system of regulation and financial investment is suitably robust, so that individuals are treated fairly and have confidence in the financial system in which they invest. Unfortunately, no system of regulation can completely eradicate the risk that firms fail, or that there are bad actors intent on committing fraud. This short Bill is aimed at two areas where it is necessary for the Government to step in.
Clause 1 relates to a new Government scheme to compensate London Capital & Finance bond holders who lost money after the firm entered administration in 2019. Clause 2 will arrange a loan to the board of the pension protection fund to pay compensation to occupational pension scheme members who have been victims of pension fraud, following the recent High Court judgment in the case of PPF v. Dalriada. I will now expand briefly on those measures in detail.
Gareth Thomas (Harrow West) (Lab/Co-op)
The Minister will understand that part of the reason why we are here today is because of Dame Elizabeth Gloster’s excoriating report into the capacity of the Financial Conduct Authority. Is he certain that the FCA now has the powers and, crucially, the capacity it needs to ensure that consumers of financial services businesses are properly protected?
Guy Opperman
Yes, I believe that is the case. The Treasury and the FCA are working together. The FCA is under new management, as the hon. Gentleman will be aware, and there is an acceptance by the FCA of all the findings in Dame Elizabeth Gloster’s report. More particularly there is fresh thinking, one hopes, that will be applied going forward.
Kevin Hollinrake (Thirsk and Malton) (Con)
Will the Minister give way on that point?
Kevin Hollinrake
Powers are one thing, willingness is another. The FCA has shown a remarkable reluctance to hold people to account for incompetence or bad actors, as the Minister said. Will not those failings simply continue unless the FCA starts identifying individuals, within its own ranks or within the banks, for those failings, and holds them to account?
Guy Opperman
Clearly, it is not possible to comment on specific future events, but Ministers are liable for the actions of civil servants, through vicarious liability, and we would expect regulators to take a similar approach and, putting it simply, to own the problems they are trying to solve. If that is a lesson learned from this sorry saga, in my humble opinion that would be a good thing. Clearly, it is for the FCA to take a good long, hard, look at itself, and other regulatory bodies, and decide how it will run itself going forward, with suitable input from Government.
Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)
Will the Minister give way?
Guy Opperman
I will not give way any more. I apologise, but we are trying to do this whole debate in 58 minutes. Please bear with me.
As the House will be aware, on 19 April the Economic Secretary to the Treasury provided a written ministerial statement on the Government’s approach to setting up a compensation scheme for London Capital & Finance bond holders who lost money following the firm’s collapse in 2019. LCF was an FCA authorised firm, which sold unregulated non-transferrable debt securities, commonly known as mini-bonds, to investors. Sadly, 11,600 bond holders lost around £237 million when LCF went into administration. For some investors that will have formed part of an investment portfolio, but for others it will have represented a significant proportion of their savings.
Following LCF’s collapse, the Economic Secretary to the Treasury directed the FCA to launch an independent investigation into its regulation and supervision of LCF. As we have discussed, Dame Elizabeth Gloster led the investigation and concluded that the FCA did not effectively supervise and regulate LCF. The LCF business model was, it is accepted, highly unusual in both its scale and structure. In particular, the firm was authorised by the FCA, despite generating no income from regulated activities. That allowed LCF’s unregulated activity of selling non-transferrable debt securities, known as mini-bonds, to benefit from the impact of being issued by an authorised firm. While other mini-bond firms have failed, LCF is the only mini-bond firm that was authorised by the FCA and sold bonds in order to on-lend to other companies.
In response to the regulatory failings detailed in Dame Elizabeth’s report and the range of interconnected factors that led to losses for bondholders, the Government announced two things: first, they would establish a compensation scheme, and secondly, they would accept all of Dame Elizabeth’s report, as did the FCA. It is, however, important to emphasise that the circumstances surrounding LCF are unique and exceptional, and the Government cannot and should not be expected to stand behind every failed investment firm. That would, with respect, create the wrong incentives for individuals and an unacceptable burden on the taxpayer.
Clause 1 of the Bill, which is the LCF measure, covers two key elements. First, it provides parliamentary authority for the Treasury to incur expenditure in relation to the scheme. Secondly, it makes a minor technical change that disapplies the FCA’s rule-making processes for the purpose of the LCF compensation scheme. The Treasury intends to use part 15A of the Financial Services and Markets Act 2000 to require the Financial Services Compensation Scheme to administer the scheme at speed on the Treasury’s behalf. The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80% of the compensation that they would have received had they been eligible for FSCS protection.
Around 97% of LCF bondholders invested less than £85,000 and will not reach the compensation cap under either the Government’s scheme or the FSCS. The Government expect to pay out around £120 million in compensation to around 8,800 bondholders in total and are committed to ensuring that the scheme has made all payments within six months of this Bill securing Royal Assent.
As colleagues will be aware, this is a two-measure Bill, the second clause of which concerns the Department for Work and Pensions and involves loans to the board of the Pension Protection Fund. Clause 2 amends the Pensions Act 2004 by inserting a new section that will give the Secretary of State a power to lend money to the board of the Pension Protection Fund.
The Pension Protection Fund manages the Fraud Compensation Fund, which pays compensation to occupational pension schemes that have lost out financially due to dishonesty. When set up in 2004 by the Blair Government, the PPF and the FCF did not envisage that pension liberation schemes were in scope for FCF payments. This clause will allow compensation to an estimated 8,806 individuals who have been defrauded following the pronouncement of the recent Court judgment in the Dalriada case.
Pension liberation fraud involves members being persuaded to transfer their pension savings from legitimate schemes to fraudulent schemes, with promises of high investment returns or access to a loan from their pension scheme before the age of 55 without incurring a tax charge. The Pensions Regulator has now placed professional pensions trustees in charge of the affected schemes. Those trustees are seeking compensation on behalf of scheme members through the Fraud Compensation Fund.
Following receipt of a significant number of applications, the Pension Protection Fund sought guidance from the High Court in a test case on which schemes should be eligible for the Fraud Compensation Fund. The Court judgment in the case of the Pension Protection Fund vs. Dalriada was pronounced on 6 November 2020, and the High Court concluded that such pension liberation schemes would be eligible, subject to meeting eligibility criteria. The Government have decided to fully accept the Court’s judgment on this and are committed to ensuring that all those who have been victims of pension liberation schemes are able to claim through the Fraud Compensation Fund. However, it is estimated that claims will exceed £350 million, which is far greater than the £26.2 million of assets currently held in the Fraud Compensation Fund, hence the requirement for clause 2 of the Bill and the action that the DWP and the Government are taking.
This is a necessary, urgent and important Bill which will ensure financial protection and fair outcomes for those falling victim in these particular circumstances. My hope and expectation is that the Bill will receive widespread support, and I commend its contents to the House.
The Economic Secretary to the Treasury (John Glen)
It is a great honour to speak in this debate and to have worked with the pensions Minister—the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham (Guy Opperman)—to bring forward this legislation. Many Members of this House, if not all, will have constituents who have been affected by the issues that we have dealt with and discussed this afternoon.
I am pleased that the Bill has the support of Members across the House. I have listened carefully to the debate. Observations have been made about the FCA and about the House’s confidence in its conduct; I will seek to address those points and to respond to the important points raised by several hon. Members about the compensation scheme for London Capital & Finance.
Let me begin with the scope of the compensation scheme and what it means in relation to the Government’s approach to future firm failures—a point that the right hon. Member for Hayes and Harlington (John McDonnell) and others raised. The LCF is not the only mini-bond firm that has failed in recent years. The Treasury, in collaboration with the FCA, has examined every mini-bond issuer known to have failed in the past eight years. Following that detailed analysis, the Government are satisfied that the circumstances surrounding LCF are truly exceptional.
As hon. Members may already be aware, the issuance of mini-bonds is not regulated by the FCA. As my hon. Friend the pensions Minister set out, LCF was an FCA-authorised firm despite not receiving any income from regulated activities. LCF is unique in that regard; indeed, it is the only mini-bond issuer that was authorised by the FCA and that sold bonds to on-lend to other companies. That is important, because one of the central findings in Dame Elizabeth Gloster’s excellent report is that because LCF was authorised, the FCA should have considered its business holistically, including the unregulated activity of issuing mini-bonds. The FCA cannot be said to have the same responsibilities with regard to unauthorised firms. Although the Government have not seen evidence to suggest that the regulatory failings at the FCA caused the losses for bondholders, they were a major factor that the Government considered when deciding to establish the scheme.
I pause to acknowledge the representations made by the hon. Members for Strangford (Jim Shannon) and for Kirkcaldy and Cowdenbeath (Neale Hanvey) and by my hon. Friend the Member for Leigh (James Grundy). I will set out in due course, in the coming months, the details of how the scheme will operate. I am very happy to take correspondence on individual cases, but I think it would be inappropriate to try to address at the Dispatch Box this evening every single case raised. However, I have received and read many letters from individuals who have lost money after investing in LCF and other failed mini-bond firms, including Blackmore Bond and Basset & Gold, which were raised in the debate.
I sincerely extend my sympathy to all those affected, as I know that many individuals have suffered financial hardship—severe financial hardship, in many cases—as a result of their investment losses. However, I must be clear that the Government cannot step in to pay compensation in respect of every failed financial services firm. That falls outside the financial services compensation scheme, would create a moral hazard for investors and would potentially lead individuals to choose unsuitable investments, thinking that the Government would provide compensation in all cases if things went wrong.
The Government’s approach follows the historical precedent. I note that only three compensation schemes have been established in the past 35 years—for Barlow Clowes, a Ponzi scheme that failed in the late 1980s, Equitable Life and LCF—despite many investment firms failing over that period. The Government are also seeking to ensure that the situation never arises in the future. In April, we launched a consultation with proposals to bring mini-bonds into FCA regulation.
The right hon. Member for Wolverhampton South East (Mr McFadden) asked a number of questions about the Government’s confidence about the FCA’s capability. As the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham mentioned, the transformation programme that the new chief executive, who has been in post for just over eight months, is undertaking at pace is designed to empower the organisation at all levels to hear the representations that the right hon. Member for Wolverhampton South East made, to act on them, and to deal proactively with the cases that are raised.
Gareth Thomas
It is encouraging to hear the Minister’s confidence in the transformation programme. Given the concerns that consumers might lose out in the demutualisation of Liverpool Victoria, will he sit down with the new chief executive of the FCA and go through how the FCA will ensure that consumers’ interests are properly protected if that demutualisation goes ahead?
John Glen
I thank the hon. Gentleman, as ever, for his representations. He has been a determined campaigner for that sector during my tenure. I have regular conversations, at least every six weeks, with the chief executive of the FCA, and we discuss a whole range of matters. I would be very happy to discuss that matter with him when I next speak to him in the next few weeks.
As Members from across the House have recognised today, the measure concerning a loan to the board of the Pension Protection Fund, set out in clause 2, is vital to ensure that those defrauded of their pensions by scam pension liberation schemes are able to access the compensation that they deserve. The Bill will ensure that those whose pensions have been unjustly targeted by fraudsters receive their pensions. We must continue to provide a safety net for people across the UK, who deserve to have confidence that they will have a pension pot for their retirement. I note that a number of observations were made about the ongoing challenge of dealing with the evolving nature of financial services firms and the sophistication of scams. The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham, and I are working across Whitehall to bring an effective resolution to this matter.
I acknowledge that Members from across the House have supported the principles of the Bill, and I welcome the support that it has received. It will offer some relief to the enormous distress and hardship suffered by LCF bondholders and victims of fraudulent pension liberation schemes. It is an important Bill, and I want to move as quickly as possible from Royal Assent to enact it and deliver that compensation. I hope that right hon. and hon. Members will support it this evening.
Question put and agreed to.
Bill accordingly read a Second time.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill:
Committal
The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 17 June.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Alan Mak.)
Question agreed to.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill, it is expedient to authorise the payment out of money provided by Parliament of:
(a) expenditure incurred by the Treasury for, or in connection with, the payment of compensation to customers of London Capital & Finance plc; and
(b) loans by the Secretary of State to the Board of the Pension Protection Fund.—(Alan Mak.)
Question agreed to.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (ways and means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill, it is expedient to authorise such levying of charges under section 189 of the Pensions Act 2004 and Article 171 of the Pensions (Northern Ireland) Order 2005 as may arise by virtue of that Act.—(Alan Mak.)
Question agreed to.
Madam Deputy Speaker (Dame Rosie Winterton)
I will now suspend the House for two minutes to make the necessary arrangements for the next business.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 15th June 2021
(3 years, 5 months ago)
Public Bill CommitteesCompensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 June 2021 - (15 Jun 2021)
This text is a record of ministerial contributions to a debate held as part of the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Ms Howard, you responded to Mr Thomas’s first question by saying that you would write to us. May I point out to you that you must write your response to both questions today? Minister Opperman, do you have any questions?
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
You are very kind, Chair, but I do not.
The Economic Secretary to the Treasury (John Glen)
No, I do not, thank you.
The Chair
That brings us to the end of this session. I thank all the witnesses for giving evidence.
Examination of Witness
David Taylor gave evidence.
Guy Opperman
Q
David Taylor: That is right. The types of cases that we were dealing with in the early years of the Fraud Compensation Fund were different. They did not involve schemes that had been set up specifically for the purpose of pensions liberation. They were more to do with, for example, employers who had failed to pay over into a scheme the moneys that they had deducted from their employers or conceptually straightforward fraud by which money was taken out of existing defined contribution or DB pension schemes.
Guy Opperman
Q
David Taylor: That is correct.
Guy Opperman
Q
David Taylor: That is right. There have been a couple of changes over the years.
Guy Opperman
Q
David Taylor: That is right, yes.
Guy Opperman
Q
David Taylor: Yes, we do. We are just about to publish our report for the year finishing 31 March 2021. It is quite comprehensive and is audited by the National Audit Office.
Guy Opperman
Q
David Taylor: It does, and I anticipate that there will be far more activity on the Fraud Compensation Fund in the year to come than there has been in previous years.
The Chair
If there are no further questions from Members, I shall thank the witness for his evidence. We now move on to the next panel.
We seem to be struggling to get all the witnesses on Zoom, so I will suspend the sitting until 10.45 am.
The Chair
Okay, that brings us to the end of this session. If there are no further questions from Members, I thank the witnesses for their evidence. Because we have closed a little sooner than expected, I will invite the Government Whip to propose the Adjournment. Please will Committee members leave the room promptly by the door marked “Exit”, while observing social distancing? The Committee will meet again today at 2 pm in Committee Room 10 to begin line-by-line consideration of the Bill.
Ordered, That further consideration be now adjourned. —(Alan Mak.)
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 15th June 2021
(3 years, 5 months ago)
Public Bill CommitteesCompensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 June 2021 - (15 Jun 2021)
This text is a record of ministerial contributions to a debate held as part of the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr McFadden
My hon. Friend is right; the lacuna referred to in the report relates particularly to the allocation of ISA status. We asked Dame Elizabeth about that during the oral evidence session this morning. This is important because if there are two things that gave the mini-bonds the stamp of respectability, it would be that prominent in LCF’s advertising was the statement that it was regulated by the FCA, which at firm level was true but was not true of the mini-bonds being sold, and that they could be placed inside an ISA wrapper. Although it is, of course, true that people who invest in ISAs can lose money, for understandable reasons, the ISA wrapper has a certain cachet and a note of respectability.
Dame Elizabeth confirmed during oral evidence this morning that once the ISA wrapper status was allocated in 2017, the degree of investment in those mini-bonds rose markedly, because people would have thought they were investing in something safe. The adverts spoke, in fact, of a 100% record in paying out, when what we were really dealing with was a pyramid scheme where any pay-outs that did come came from other investors and not normal market returns. People thought they were investing in a safe bond. They did not think they were playing investment roulette.
The Economic Secretary also emphasised the uniqueness of the LCF case in his closing speech on Second Reading. He said:
“LCF is unique in that regard; indeed, it is the only mini-bond issuer that was authorised by the FCA and that sold bonds to on-lend to other companies.”—[Official Report, 8 June 2021; Vol. 696, c. 918.]
That is an exact replica, with both Ministers saying the same thing, and I suspect that that phrase has been very carefully honed inside the Treasury. A case had to be made for the uniqueness of this that could not be applied to other investment failures, so I think that form of words is very carefully chosen. However, the Minister may be able to tell us more when he responds.
The amendment is designed to tease out the following point, which I want to clarify with the Minister. Is it the case that even though a number of mini-bond issuers have collapsed in recent years, LCF is the only one that was authorised and regulated by the FCA? The Minister can intervene now or I am happy to wait. As I said to the Ministers on Second Reading, there must have been a discussion in the Treasury about developing a compensation scheme such as the one set out in clause 1. The question would have been asked: if we did this for LCF, what about investors in the Connaught fund or Blackmore Bond or any of the other investment schemes that were raised either on Second Reading or during the oral evidence session this morning? What was the nature of those discussions at the Treasury and what is it about LCF that makes the Government convinced that compensation is due in this case but not in the others? That is why our amendment calls for a report. Having taken the decision to compensate, we believe it would be in the public interest for the Treasury to set out the circumstances under which the taxpayer might be expected to pay when investors lose money. Is it about a firm being authorised by the FCA? Is it about commissioning a report by an eminent and independent figure such as Dame Elizabeth Gloster?
The Economic Secretary to the Treasury (John Glen)
I am very happy to respond at length in my remarks at the end. The distinction we make is that LCF is the only FCA-authorised firm that was on-lending. That is the distinction; not so much the mini-bond issuance but the on-lending nature of it.
Mr McFadden
I am grateful to the Minister. I am just going through this series of things to try to clarify exactly what might place the taxpayer on the hook. Does it require the kind of report carried out by Dame Elizabeth Gloster and commissioned by the FCA into the collapse of LCF? Is there a clear threshold of regulatory failure to be passed? There was obviously regulatory failure in this case, but, as we saw from the witnesses this morning, people will argue that other regulatory failures have applied to other firms.
In this case, the regulatory failures were multiple. I do not want to go through them in detail because we will come on to other amendments in which they can be discussed, but I will mention a few of them briefly: misleading promotions by LCF using the halo effect have been regulated by the FCA yet not adequately dealt with by the financial promotions team at the FCA; a failure by the same financial promotions team to join the dots and alert other parts of the FCA, such as the supervisory team, on the implications of those misleading promotions; and multiple attempts to alert the FCA—more than 600 phone calls, according to annex 6 of Dame Elizabeth’s report. Yet, in the vast majority of cases nothing was passed up the line of pursuit, in large part because the mini-bonds were not regulated by the FCA, so the call-handlers’ instincts were, “You’re phoning us about something that we do not regulate, so we don’t have to pass it up the line”—even though the firm as a whole was regulated by the FCA.
Gareth Thomas
I do not intend to detain the Committee long, because my right hon. Friend the Member for Wolverhampton South East made an excellent speech on this issue; I merely want to underline the point that I made in when intervening on him. There seems to be a degree of risk in the Government’s approach. Again, it would be good to hear from the Minister to better understand why the level of regulatory failure in this particular case should merit Government compensation, whereas if there were to be regulatory failure in, say, the case of the FCA’s handling of the demutualisation of Liverpool Victoria, that would not merit compensation for the 1 million-plus customers and owners of that financial services business.
I also underline the point that I made when intervening on the hon. Member for Glenrothes, who speaks for the Scottish National party, on the need of the FCA to perhaps rethink its approach to consumers more generally. At least one of the regulators in the financial services business case that I have particularly been following—that of Liverpool Victoria—has met representatives of that organisation some 35-plus times but has not met consumers at all. That seems to be an example of the FCA continuing not to have properly thought through where it might need to change its practices going forward. I know the Minister will be looking at this issue, and I gently encourage him to focus particularly on that aspect of the regulatory failure.
My right hon. Friend the Member for Wolverhampton South East underlined the point in Dame Elizabeth Gloster’s report that there have been 600 phone calls from customers about LCF’s poor performance, yet that still did not seem to spur on the FCA to take action quickly. There are almost 10 times as many consumers who are members of Liverpool Victoria as those who invested in LCF, which surely further underlines the need to get right how the FCA handles the consumer interests going forward. I look forward to the Minister’s answers.
John Glen
It is a pleasure to serve under your chairmanship, Ms Ghani, and I thank all Committee members for their consideration of this important legislation.
As I set out on Second Reading, the Bill is a vital step in compensating LCF bondholders, and I will now turn directly to the consideration of amendments 1 and 7. As the right hon. Member for Wolverhampton South East set out, amendment 1 seeks to add a requirement for the Secretary of State to lay before Parliament a set of criteria for when the taxpayer should compensate investors for investment failures. In essence, it brings some clarity about when the mechanism that we are adopting, and hopefully funding, through the passage of the Bill would be used. Amendment 7 seeks to require the Secretary of State to lay before Parliament a report that assesses the impact of the Government’s compensating the customers of London Capital & Finance plc, as well as broader issues relevant to the mis-selling scandal.
I have listened very carefully to the speeches made during the passage of the Bill, on Second Reading and today, and to the evidence that we received this morning. I am particularly drawn to the remarks of my hon. Friend the Member for North East Bedfordshire, who acknowledged that a degree of risk is involved with any investment. With the right set of regulations and requirements, however, investors can be equipped with the right information to understand their risks and to make informed choices. The Government’s scheme appropriately balances the interests of both bondholders and the taxpayer, and it will ensure that all LCF bondholders receive a fair level of compensation for the financial loss they have suffered.
I turn now to compensation. I must reiterate that LCF’s failure was unique and exceptional. It is the only failed mini-bond issuer that was FCA-authorised and was selling bonds in order to on-lend to other companies. In conjunction with the FCA, the Treasury has looked at eight mini-bond firms that have failed in recent years, and LCF is unique in that respect. It is important to emphasise that the Government cannot and should not stand behind every investment loss. As I have probably said previously, LCF’s business model was highly unusual in both its scale and structure, and the extraordinary circumstances surrounding its collapse are unique.
Peter Grant
Has the Economic Secretary or any of his advisers actually read the promotional material that companies such as Blackmore Bond were giving out, to assess the number of times that words such as “guarantee” and “secure” were included in those documents? Does he not accept that something needs to be looked at there—maybe not for compensation this time, but certainly for tighter regulation in the future?
John Glen
I am grateful to the hon. Gentleman for his intervention because it takes me to the question of what the Government are doing to improve the efficacy of the financial promotions regime that he mentioned in respect of a different failure. We continue to keep the legislative framework underpinning the regulation of financial promotions under review, including whether it is suitable for the digital age. Many of the promotions are obviously online. We will publish a response in the early summer to the consultation on a regulatory gateway for authorised firms approving the promotion of unauthorised firms. It is not an issue that we take lightly. Change, once in place, is designed to strengthen the regime by ensuring that firms able to approve financial promotions are limited to those with the relevant expertise to do so. The FCA will be better able to identify when a financial promotion has breached the restrictions and take action accordingly, but that does not mean that the LCF failure is not unique and of a different scale and quality from some of the other failures.
Mr McFadden
I want to ask the Minister about the point he made about on-lending. What is the relationship between on-lending and the degree of regulatory failure? He is probably right that this was the only firm doing on-lending, but Dame Elizabeth’s report focuses on an egregious regulatory failure and she sets out all the different things that we will discuss. I suspect that the Government have found something about this case that is unique in order to insulate themselves from claims from other investment failures. I do not see the relationship between that uniqueness and the regulatory failures outlined in Dame Elizabeth’s report.
John Glen
As the right hon. Gentleman set out, Dame Elizabeth’s report showed enormous failure in the way that the FCA discharged its responsibility for a regulated firm carrying out unauthorised activities. The point that he is making specifically is about the distinctiveness of the on-lending. There is a distinction between a firm, such as BrewDog or Hotel Chocolat, that raises funds for its own business activities and a firm that, although authorised, has not carried out regulated activities. Through the failure of the FCA’s oversight to look at the broader activities of the firm, it is impossible to verify whether those activities on lending bore any relationship to the raising of funds for that business. That is the distinctive difference. It is that failure of the FCA to execute its broader responsibility for an authorised firm carrying out an unauthorised activity in this distinct area that gives us licence to intervene.
On the specific issue of non-transferable debt securities, which are commonly known as mini-bonds, the Government are consulting on proposals to bring their issuance into FCA regulation. After listening to the evidence this morning, I would just make the point that Dame Elizabeth Gloster made 13 recommendations in her report. In the written ministerial statement of 17 December 2020 that was issued in my name all those recommendations were accepted—nine pertaining to the FCA and four to the Treasury. There has also been a subsequent undertaking by the FCA to report on progress against those actions and recommendations. The FCA is conducting a detailed piece of work to look at the issue of high-risk investments holistically, and that includes a discussion paper to get views on changes that can strengthen the FCA’s financial promotion rules for high-risk investments. This work follows the FCA’s ban on the mass marketing of speculative illiquid securities.
As the right hon. Gentleman rightly said, only three Government compensation schemes have been established in the past three decades: Barlow Clowes, Equitable Life and LCF. I acknowledge that, for some, they have not been complete and satisfactory. Despite many investment firms failing over that period, the fact that there have only been those three interventions on the scale that we are seeking to secure today demonstrates that this type of intervention is the exception and not the rule. Moreover, the particular circumstances of these three cases are quite different. For example, compensation was provided to Equitable Life investors, in most cases not because they had lost their original capital but because the firm had not met the expected returns on which many investors had based their future retirement plans. That contrasts starkly with LCF, where investors stood to lose their principal sum.
The common feature in each case is a degree of maladministration or misregulation—a major factor that the Government considered in deciding to launch the LCF compensation scheme—but the circumstances are idiosyncratic. It therefore would not be possible in any meaningful sense to set out the precise framework for Government to consider when establishing such schemes in future or to stipulate the threshold of misregulation ex ante.
That does not mean to say that as a Minister, and in my frequent engagement with the FCA, I do not look closely at all these matters. Indeed, I have done so throughout the process in getting to this point today. I believe that such a framework could create an unrealistic expectation among investors about the possibility of future Government compensation schemes and the misconception that Government will stand behind bad investments. That would create a moral hazard for investors and potentially lead individuals to choose unsuitable investments, thinking that the Government will provide compensation if things go wrong.
I want to address some of the points that the right hon. Gentleman made. He mentioned ISAs. As we announced in response to Dame Elizabeth’s report, HMRC and the FCA have now established an ISA intelligence working group to strengthen communication and information sharing between the two organisations. The group has met and agreed the structure and objectives, which is already resulting in information sharing between the two organisations.
In parallel, from this autumn, once recruitment of personnel is complete, HMRC will reinforce its ISA compliance regime with a programme of ISA manager audits. This will not focus on consumer protection, which does not fall within HMRC’s remit, but could detect technical breaches of the ISA regulations.
We are exploring steps to increase consumer understanding of the ISA wrapper. As the right hon. Gentleman rightly said, this has a large degree of consumer confidence vested in it. We need to tackle the misplaced perception that ISAs benefit from greater Government or regulatory assistance.
I have deep engagement with the FCA. I will speak later this week to the chief executive as part of my routine, regular engagement and I will relay the detailed comments of, in particular, the hon. Member for Harrow West on the degree of engagement of consumer groups versus the regulated firm’s representatives, and especially the case he is on at the moment.
We heard evidence this morning about the retention of one named individual. The chief executive has brought in five new people from outside the organisation in taking a balanced view on how to deliver a successful transformation programme. I urge him to continue successfully to implement the programme.
There are considerable principled and practical drawbacks to the amendment, which is why I ask that it be withdrawn.
Mr McFadden
I am grateful for the Minister’s response.
I am not entirely convinced about the relationship between on-lending and the decision to compensate. I am sure that the Minister is correct in the literal sense that this was the only regulated firm that was selling unregulated mini-bonds. I am not saying that the Minister is wrong, but from reading the report I believe that Dame Elizabeth would have made the same findings. The mini-bonds were not doing what it said on the tin: they were not on-lending but pyramid selling.
The degree of failure, the degree of investment loss and the degree of regulatory failure are not directly related to the point about on-lending: it is more substantial than that. I am not convinced that all the elements of the Government’s case add up. It looks to me as though they have had to find a unique element to insulate themselves from court action or other claims.
John Glen
I will obviously now move to consideration of amendment 2. I am grateful to the right hon. Member for Wolverhampton South East, who is an experienced and distinguished former Minister himself. He referred to the catastrophe word bingo. I do not want to address that particularly, but I will address the amendment, which seeks to add a requirement for the Secretary of State to publish a report setting out progress on the implementation of the 13 recommendations in the report by Dame Elizabeth Gloster.
I will also tell the right hon. Gentleman precisely what we have done, what I think the FCA has done, and where I think that takes us, and I will address his concerns, raised throughout this debate, on the perimeter, on the halo effect and some of the points that Dame Elizabeth Gloster made.
The Treasury accepted Dame Elizabeth’s four recommendations regarding the Treasury and we welcome the FCA’s commitment to implement all nine of her recommendations that apply to it. We are committed as a Government to act on Dame Elizabeth’s recommendations, to ensure that the regulatory system maintains the trust of consumers. I submit that progress has already been made in implementing the recommendations and I set that out during my evidence session for the Treasury Committee’s inquiry into the FCA’s regulation of London Capital & Finance on 21 April.
Regarding Dame Elizabeth’s recommendations for the FCA, I obviously welcome the FCA’s acceptance of them, and I am sure that the Committee will have noted its commitment to report publicly on its progress in implementing these recommendations and indeed on its wider transformation programme. I am sensitive to the criticism that this is an empty exercise where there is nothing specific that Parliament and Members can address. I would therefore draw attention to the fact that Charles Randell, the current chair of the FCA, provided a detailed update in his letter to me on 16 April.
The letter has been published on the FCA’s website and sets out the comprehensive improvements that have already been delivered. The right hon. Member for Wolverhampton South East rightly referred to a number of those, and the hon. Member for Harrow West mentioned training and the empowerment of staff to make decisions and respond to those calls and representations from consumers. A further update will be provided in the FCA’s annual report, which will be published in July, and the FCA is committed to providing updates every six months until the programme is delivered. I would also note that the Treasury Committee intends to publish its report on the FCA’s regulation of LCF before the end of June, which the Government and the FAC will no doubt respond to as appropriate.
Mr McFadden
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
John Glen
London Capital & Finance was an FCA-authorised firm that primarily offered an unregulated investment product, commonly known as mini-bonds, to retail consumers. It entered administration in January 2019, impacting 11,625 people who invested around £237 million. The Serious Fraud Office and FCA enforcement have launched an investigation into individuals associated with LCF. The Financial Reporting Council has also launched investigations into the audits of LCF. As the Committee will know, Dame Elizabeth Gloster led that independent investigation, which also revealed shortcomings in the FCA’s supervision of LCF. A complex range of interconnected factors contributed to the scale of losses for LCF bondholders, creating a situation that is unique and exceptional. While other mini-bond firms have failed, LCF is the only one that was authorised by the FCA and sold bonds in order to “on-lend” to other companies. As I have said before, LCF’s business model was highly unusual both in its scale and structure. In particular, it was authorised by the FCA despite generating no income from regulated activities. Bondholders were badly let down by LCF and the regulatory system designed to protect them, and I announced that the Treasury had set up a compensation scheme for bondholders who suffered losses after investing in LCF. The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and will provide 80% of the compensation that they would have received had they been eligible for FSCS protection up to the maximum cap of £68,000. The LCF scheme is expected to pay out £120 million in compensation to around 8,800 bondholders in total. Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation paid.
There are two main aspects of clause 1, which I shall explain in turn. First, legislation is required to establish the financial authority to enable the Treasury to incur expenditure in relation to the scheme. That will ensure that the Treasury complies with the 1932 Baldwin concordat and the principles of managing public money. Clause 1 provides the Treasury with the spending authority that will enable payments to be made to eligible bondholders. We are working on the details of that scheme but I hope that it will be possible to reimburse them within six months of Royal Assent.
Secondly, the Treasury intends to use the process set out in part 15A of the Financial Services and Markets Act 2000 to require the Financial Services Compensation Scheme to administer the scheme on behalf of the Treasury. Clause 1 disapplies the FCA’s rule-making requirement so that existing rules relating to the FSCS can be applied to the scheme without the need to undertake a lengthy consultation. That reflects the fact that existing rules have already been consulted on and avoids any further unnecessary delays to compensation payments. In addition, as the Treasury will pay for the scheme, there is not the same obligation to consult FSCS levy payers as there would be for rules that sought to make use of FSCS funds raised by the levy.
I submit that clause 1 is an essential step in the introduction of the LCF compensation scheme without which compensation payments cannot be made. I therefore recommend that the clause stand part of the Bill.
The Chair
I understand that the right hon. Member for Wolverhampton South East wishes to make a short contribution.
Peter Grant
The Minister referred to the fact that there are ongoing investigations in relation to LCF. Does he recognise that some of the individuals and intermediary businesses that are now under criminal investigation for their part in LCF also played a major part in other mini-bond scandals that I have written to him about separately? Although he made the point about the uniqueness of LCF, the aftershock of LCF is very definitely being felt in other mini-bond scandals that have happened since then.
John Glen
Out of courtesy, I am very happy to respond to my colleagues. The right hon. Member for Wolverhampton South East asked why the 80% figure was not 100%. As I have tried to explain through the submissions that I have made, the Government have been trying throughout to balance the interests of bondholders and the taxpayer to ensure that we have a fair level of compensation in respect of the financial losses incurred. The scheme is based on the FSCS level of compensation but, as he knows, it is 80% up to that cap of £68,000 to reflect the unregulated nature of the LCF product.
I emphasise that it is imperative to avoid creating the misconception that Government will stand behind bad investments in future, even where the FSCS does not apply. That would create a moral hazard for investors and potentially lead individuals to choose unsuitable investments thinking that the Government will provide compensation when things go wrong. To avoid creating that misconception, and to take into account the wide range of factors that contributed to the losses that the Government would not ordinarily compensate for, the Government will establish the scheme at the level of 80% of LCF bondholders’ initial investment up to the maximum of £68,000. With any investment, there is clearly a risk that sometimes investors will lose money, and the Government and taxpayer cannot and should not be expected to step in and compensate for every failure and every loss. It would not be right or fair for investors in non-regulated products to receive fuller compensation than those who have invested in regulated products, for which the maximum amount is capped at £85,000 under the FSCS.
On the remarks of the hon. Member for Glenrothes about the individuals involved in an ongoing serious fraud inquiry, I am not familiar with the detail, but obviously I am happy to receive any representations. I hope that brings satisfaction to the Committee.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Loans to the Board of the Pension Protection Fund
Matt Rodda (Reading East) (Lab)
I beg to move amendment 3, in clause 2, page 2, line 7, at end insert—
“(3) No loan shall be made under this section until the Secretary of State has laid before Parliament an impact assessment of the means of repaying the loan, including specifically the impact on pension schemes from the Fraud Compensation Fund levy.”
This amendment would prevent the Secretary of State from making a loan to the Board of the Pension Protection Fund for the purpose of compensating eligible pension schemes until he or she has laid before Parliament an impact assessment of the Fraud Compensation Fund levy on different pension sectors.
The Chair
Thank you, Mr Thomas; your point of order is duly noted. I believe that the Clerk will indeed be pressing for that data as soon as possible.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
I gather that we have a possible vote in the House, so I will attempt my entire response in 10 minutes. Before I do so, it is right that, on behalf of the entire Committee, I thank you for chairing the Committee, Ms Ghani. As the former ports and shipping Minister, and in a month when we celebrate the first female Royal Navy captain, some might argue that you are a well-qualified captain to keep what is—let us be honest—a motley crew in order. If you run for Speaker, Ms Ghani, I will definitely be supporting you.
Let me discuss what clause 2 does and does not do. It creates a power to make a loan to the board of the Pension Protection Fund, following the decision of 6 November 2020 in the case of the PPF v. Dalriada. It achieves that by inserting a new section into the Pensions Act 2004 to provide the Secretary of State with a power to loan money to the board of the PPF.
I think it is fair to point out to the Committee that the clause deals with matters that are predominantly––almost entirely––to do with 2010 to 2014. Many would wish to make this a case about pension freedoms, when in fact pension freedoms post-dated these matters. It is clearly a serious and important matter, and, following a court decision, the Government have accepted the entirety of that decision.
The practical reality is that the Fraud Compensation Fund has assets of £26.2 million, and the potential liability arising from the court judgment is £350 million. I accept that points have been made in respect of how the loan is to be repaid in the longer term and I will address that, but I shall now turn briefly to the amendments.
Amendment 3 seeks an impact assessment. With great respect to the Members who tabled that request, it is utterly unnecessary. It is, in fact, precluded by the decision of the House on section 22 of the Small Business, Enterprise and Employment Act 2015, of which I am sure Members are acutely aware. It states that impact assessments are not required in respect of levies or other such charges in these particular circumstances.
Secondly, the clause is implementing a court judgment.
Peter Grant
Will the Minister clarify his last comment? Did he say that impact assessments are not required or that they are not permitted? Surely, if they are not required, we can still ask for one if we think it would be useful.
Guy Opperman
That is a very fair question that I shall attempt to answer while I am on my feet, but I believe that it is not required. Section 22 of the 2015 Act excludes impact from the definition of regulatory provision, so I believe that it is an exclusion rather than a requirement. If I am wrong in any way, I shall write to the hon. Gentleman and correct myself. I may be corrected while I am on my feet, although in the brave new world of covid, that is quite difficult, as I am sure that he understands.
Clearly, if we were to do an impact assessment at this time, it would fundamentally delay the implementation of payment to members, and the blunt truth is that the PPF will run out of money by October if we do not progress this legislation. The levy increase will be consulted on post the passing of this Bill. It will need consultation, regulations and debate in the usual way.
Amendment 5 would also delay the progress of this matter. The Government will respond to the Work and Pensions Committee, to which I gave detailed evidence, before the end of the summer term. The full response of the Government in respect of all matters relating to such scams will be made before the end of term. We are already progressing Project Bloom and there is the work of the Money and Pensions Service that was introduced by my hon. Friend the Economic Secretary to the Treasury in the previous Act that we worked on. We have produced section 125 of the Pension Schemes Act 2021, which Her Majesty signed on the dotted line in early February, and the consequential transfer regulations that we have consulted on over the past month to ensure that pension scams are prevented on an ongoing basis.
I have been asked to address other matters. It is clear that Ministers are engaging with various organisations, including Google and Facebook. The two of us have made our views very clear to those organisations about how they should regulate themselves. I agree that Pension Wise should be used more but, with great respect, I disagree with the Chair of the Select Committee’s proposal for the many good reasons that I outlined in the debates on Report and Third Reading of the 2021 Act. Clearly the work that we are doing jointly with the Treasury and other organisations, including the FCA, on stronger nudges towards using Pension Wise and other things will make a massive difference.
On amendment 6, there is already an annual report. In true Chamberlain style, I have it here in my hand: the annual report of the Pension Protection Fund, which is published every July. I know, Ms Ghani, that you will have read the most recent version, and will be looking forward with bated breath to the July 2021 report, which will specifically address the issues whose importance today’s witness made very clear.
In those circumstances, I invite hon. Members not to press their amendments.
The Chair
Let us try to ensure that we get through this portion of business before the Division. The Opposition spokesperson may of course respond, but let us keep it brief.
Matt Rodda
I am grateful to the Minister for his response. I feel that he is being somewhat generous in his description of the Government’s assessment of this problem and the level of response. I urge him to redouble his efforts and to focus on some of these points in further detail.
I think that the hon. Member for Glenrothes is right to draw attention to the subtle legal difference on the issue of the impact assessment. Surely, given the scale of what is going on, it would be wise to carry out an impact assessment. I appreciate the pressure of time, but perhaps with the considerable resources of DWP, which has the largest staff quota of any Department and a very able group of civil servants, it would be possible to carry out an impact assessment on a rapid turnaround, given the scale of what we are talking about and, indeed, the problems of the sector as a whole.
On the ongoing consultation and the possibility of reviews in this area, will the Minister agree to meet me and the not-for-profit providers to explore the particular issues affecting them?
Guy Opperman
I will, of course, agree to meet them. I already meet NEST and the People’s Pension regularly, and they have made a very good pitch for a reduced levy. It is already a reduced levy, as I am sure the hon. Gentleman is aware, and there is already a 0.75% cap, but of course I am looking forward to meeting them as part of the ongoing consultation.
Matt Rodda
I am very grateful to the Minister and put on the record my thanks to him for offering that meeting. I look forward to seeing him and discussing the matter.
On amendment 5, the Minister mentioned the regulations in the Pension Schemes Act 2021, but will he write to me to discuss some of the ways in which the specific parts of the regulations relate to this issue? He has been reported in the media as suggesting that it might be wise to consider pension scams in the online harms Bill. Perhaps he will comment on that now or write to me separately, because we would like to work constructively with the Government on this matter. I appreciate that online harms are a huge and wide-ranging issue, and I have a constituency interest in violent crime in respect of a tragic incident in Reading.
Guy Opperman
I would be happy to write to the hon. Gentleman. He can read in detail what I said in The Times on both occasions, and that is pretty much all I can say on that matter.
Matt Rodda
I thank the Minister for his candour and for offering me a cutting from The Times, which is a fine newspaper.
Finally, on the PPF annual report, the issue is that while these documents are very worthy, and we should all read them, there is a delay. I urge the Minister to consider the need to reassure organisations in the sector, pension savers and pensioners themselves in the near term, rather than our having to wait well into 2022 before the 2021 annual report is available.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clause 3 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 22nd September 2021
(3 years, 2 months ago)
Commons ChamberCompensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Watch Debate Amendment Paper: Consideration of Bill Amendments as at 22 September 2021 - (22 Sep 2021)
14:47 - The House divided: - Ayes: 52 / Noes: 292 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
It is an honour and privilege to respond at Report of this important Bill, which deals with the compensation due to many of our constituents up and down the country. I pass on apologies from the Economic Secretary to the Treasury who is on a ministerial trip to the United States on behalf of Her Majesty’s Government.
As the House will be aware, Dame Elizabeth Gloster’s report has already been taken through. It is a detailed report that deals with the regulatory failures that led to the collapse of LCF. The Government have accepted all four of the Gloster recommendations, and the FCA has committed to implementing all nine of the recommendations that were addressed to it, and to report publicly on the progress of those vital reforms.
Progress has already been made in implementing those recommendations. For example, the Treasury has consulted on proposals to regulate so-called non-transferable debt securities. In respect of regular reporting, hon. Members should be aware that the FCA report on the transformation programme takes place every six months. Its last report took place in July 2021, and the next report will be in spring next year.
Colleagues have raised a number of different matters, and I will attempt briefly to deal with them. The hon. Member for Harrow West (Gareth Thomas) recommended to Treasury colleagues that parliamentarians should hold the FCA to account directly, and I am sure my Treasury colleagues will respond to that proposal by letter. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) made some comments, and it is right that the FCA needs to be more proactive. To be fair, its new chief executive, with whom I know my hon. Friend is familiar, is being more proactive, and there is proper oversight on an ongoing basis. Several colleagues mentioned the online harms Bill. I have engaged with and met Google, Facebook, LinkedIn, and Instagram, as have colleagues from other parts of Government. Those individual companies need to step up to the plate, because it is very much in their domain to make real change.
Rehman Chishti
I am grateful to the Minister for allowing me briefly to intervene. He said he has had conversations with those social media companies. I sat on the Home Affairs Committee when we discussed online harms. What was the response of those social media companies, and what will it take to get them to do the right thing?
Guy Opperman
It will take strong pressure by fantastically good constituency MPs such as my hon. Friend, and others, so that those companies realise that they have an obligation to do the right thing in respect of the many constituents we represent. Clearly, though, these are matters to be considered by the Government, and I am sure my hon. Friend will be making representations to the Secretary of State for Digital, Culture, Media and Sport.
Let me turn briefly to the amendment. A lot of the speeches made had nothing to do with the amendment, and it is important to avoid creating the misconception that the Government will stand behind all bad investments in the future, where FSCS protection does not apply. The Government will establish a scheme based on the level of FSCS compensation, capped at £85,000. We have carefully considered the issues and are satisfied that the individual circumstances surrounding LCF are completely unique. Other mini-bond firms have failed, but LCF is the only mini-bond firm that was authorised by the FCA and sold bonds in order to on-lend to other companies. As the House will know, only three Government compensation schemes have been established in the past three decades, for Barlow Clowes, Equitable Life, and now LCF, despite many firms failing over that period. This type of intervention is the exception, not the rule.
Although the amendment is legitimate and considered to be principled and practical, there is a practical reality that the FCA is already reporting and is held to account by the Treasury. With respect, I therefore ask the hon. Member for Glenrothes (Peter Grant) to withdraw his amendment.
Question put, That the amendment be made,
Guy Opperman
I rise to respond to colleagues and wrap up the Bill, and I do so with great humility because this is a very serious matter. Many of our constituents up and down the country, regardless of politics, have had grievous losses. It is to the Government’s great credit that from the date of the Gloster report, we have managed to consider the report, draft and introduce legislation, consider it and progress it through the House. I am pleased to say that within six months of Royal Assent, payments will have been made. That is the assurance that the Treasury is willing to give; I most definitely support it, and I am quite sure that colleagues will hold it to account for that. It is very important that the matter is properly scrutinised.
I thank all Members, present or not, who have contributed to the Bill. Clause 1, as colleagues know, will ensure that there is parliamentary authority for the Government to pay compensation to London Capital & Finance bondholders who have not already received compensation from the Financial Services Compensation Scheme. The Government recognise that this has been a very difficult time for LCF bondholders; I hope that the compensation will offer some relief for the distress and hardship suffered and provide closure on a difficult matter.
The Government expect to pay about £120 million in compensation to approximately 8,800 bondholders in total. The Economic Secretary to the Treasury has confidence that all payments will be made within six months of Royal Assent; in the context of previous examples of the process under successive Governments, that is exceptionally fast.
This is also about justice. Having been a prosecutor for 20 years, done nine murder trials and prosecuted as an investigator for the Department of Trade and Industry, when it existed, I can assure the House that I take exceptionally seriously the principle that all people should be held to account within the due process of the law and that our constituents should feel that the due process of the law will be followed. On the comments made in respect of the Attorney General and the Treasury, I can only say that responses will be given to individual Members of Parliament.
Clause 2 will give the Secretary of State for Work and Pensions the power to provide a loan to the Pension Protection Fund for the fraud compensation fund. It will ensure that compensation reaches approximately 8,806 individuals on an ongoing basis. It follows the High Court decision in the case of Board of the Pension Protection Fund v. Dalriada Trustees Ltd on 6 November 2020. Again, we have worked very quickly—within a year—to bring consideration and legislation forward so that the fund will have the £350 million that it needs to ensure that pension claims are met. Without these measures, there would not be the capability to make this compensation; that is why we need to provide the loan to ensure that the fund can continue to make compensation for all eligible schemes on an ongoing basis.
I thank the many people who have contributed to the Bill, including the private office and policy teams at the Treasury and the Department for Work and Pensions. I also thank all Members who have engaged with the Bill. Individual Members of Parliament have made a massive difference; I pay particular tribute to my hon. Friend the Member for Leigh (James Grundy), who spoke very movingly about his amazing campaign on behalf of his constituents. He can be very proud of the way he has championed their cause, and so can my hon. Friends the Members for Gillingham and Rainham (Rehman Chishti) and for Thirsk and Malton (Kevin Hollinrake) and the hon. Member for Harrow West (Gareth Thomas).
My hon. Friend the Member for Thirsk and Malton cited Warren Buffett as the guide to all matters going forward. I would respond with Lao Tzu, who it is fair to say is not often heard in the House of Commons: the longest journey starts with the shortest step. I consider that the Government have made many steps to making proper compensation and bringing the right people some recompense for a total injustice. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read the Third time and passed.