Draft Payment and Electronic Money Institution Insolvency Regulations 2021
(3 years, 6 months ago)
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The Chair
Before we begin I would like to remind Members to observe social distancing, which is not a problem today. I remind Members that Mr Speaker has asked that masks should be worn in Committee except when speaking. Hansard colleagues would be most grateful if Members could send their speaking notes to Hansardnotes@parliament.uk. As people may have noticed, eagle-eyed, if Members wish to remove their jackets, given the inclement weather from a Yorkshireman’s point of view, they are very free to do so.
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Payment and Electronic Money Institution Insolvency Regulations 2021.
A copy of the regulations was laid before the House on 26 April.
It is a pleasure to serve again under your chairmanship, Mr Davies.
The payments sector in the United Kingdom has seen rapid change over recent years, with people increasingly using card, mobile and electronic wallets to make payments. Firms today range from small remittance firms on the high street to FinTech giants with millions of customers. The growth of the payments sector has offered opportunities for UK businesses and consumers, with many using payment and electronic money institutions not only to make payments, but as their transactional banking provider to access their salaries and savings. Customers are now able to make payments that are faster, cheaper and more secure. However, as that sector has grown, so has the number of customers exposed to risk if those firms were to fail and enter insolvency.
There is evidence that existing insolvency processes for payment and electronic money institutions are not working effectively for customers. It is challenging for an administrator to start returning relevant funds until they have complete information on all claims to those funds. Gathering that information, potentially without key outsourced staff or access to the firms IT systems, can make insolvency a long and expensive task, during which time customers do not have access to their funds. They also face an increased chance of receiving a reduced claim at the end of the process as a result of high administration fees.
Recent administration cases have taken years to resolve, with customers left without access to their money for prolonged periods and receiving reduced monies as a result of high distribution costs. The regulations therefore propose to introduce a new special administration regime for payment and electronic money institutions and an extension of provisions under the Financial Services and Markets Act 2000 to those firms. The new regime is modelled on the 2011 special administration regime for investment banks.
The changes will help to make managing the insolvency of a firm a quicker and clearer process, ultimately leading to customers receiving their funds quicker and giving continuity and confidence to consumers and businesses in the event of a payments or electronic money firm being put into insolvency. The legislation also corrects a minor defect in recent legislation, which transposed and on-shored the bank recovery and resolution directive II.
The special administration regime for payment and electronic money firms is a new insolvency process that provides consumer protection objectives and a toolkit for insolvency practitioners to aid them in efficiently managing an insolvent payment or electronic money institution. The new regime includes bespoke objectives placed upon the administrator to ensure the return of customer funds as soon as reasonably practicable, to engage with relevant authorities and either to rescue or wind-up the institution in the best interests of creditors. It also contains useful provisions on matters such as continuity of supply, to ensure that key functions, such as the provision of IT services, are maintained and not lost at the point of insolvency, and provisions to ease transfers of business which would allow the administrator to move customers to a new provider. Importantly, it also provides bar date provisions, which, with appropriate consumer protections, set deadlines for customers to claim their money back. Once those deadlines have passed, administrators are able to begin making distribution of funds, rather than having to wait for everyone to claim in their own time.
I would like to note to the Committee that additional work is required in order to apply the special administration regime to firms located in Northern Ireland, and partnerships or limited liability partnerships located in Scotland. Around 1% of the 1,300 UK payments and electronic money firms are located in Northern Ireland, and there are no firms that are partnerships or LLPs based in Scotland. I have written to Ministers in the Northern Ireland Executive and Scottish Government and committed to rectify that as soon as is practicable in future legislation. In the interim, consumers will still benefit from the changes to the Financial Services and Markets Act 2000, and from the protections offered to the 99% of eligible firms, as it does not matter where in the UK the customer is located.
The instrument also provides for part 24 of the Financial Services and Markets Act to be applied to payment and electronic money institution insolvencies. The extension of those provisions will provide the Financial Conduct Authority with the same powers to participate and protect consumers in an insolvency process for those sectors as it does for other FCA-supervised firms. That includes the right for the FCA to speak at court hearings regarding the insolvency and a requirement for the administrator to work with the FCA during the insolvency process, ensuring that the FCA can work on behalf of consumers to get them their money back.
The regulations will protect consumers and inspire confidence in a modern and world-leading British financial services sub-sector, and I commend them to the Committee.
Mr Pat McFadden (Wolverhampton South East) (Lab)
Thank you for your chairmanship, Mr Davies.
Even by the standard of Treasury SIs, this is fairly technical material that we are discussing today, and I am grateful to the Minister for his explanation. Last night in the Chamber during a different debate, I challenged the Minister that legislation and regulation needed to keep up with financial innovation. In that context, we were talking about frauds, scams and such things, but the point still holds in respect of the regulations, so I am certainly not going to oppose their intention.
As the Minister said, the regulations have arisen on account of financial innovations and the growth of electronic money institutions and payment institutions and so on. The non-bank sector has become a far bigger part of the financial ecosystem. The Minister spoke of 1,300 firms to which the regulations could apply to ensure cover, and the impact assessment tells us that those firms currently hold about £17 billion of UK assets. It is true that as the financial sector changes, so must the regulatory and legal system around it.
The idea of resolution or winding up a failed financial company has been a much bigger policy priority since the financial crash, because that exposed how difficult some of the process is given interconnected payments, all sorts of different claims on assets and so on. After the crash, a special system was developed for investment banks. The collapse of Lehman Brothers involved a long, complicated process and it was thought that a special resolution regime was needed for such institutions. The Government are trying to take that idea and apply it to electronic money institutions. The policy aim is to speed up the process in the event of insolvency and stop it taking years to conclude.
A consultation on the regulations was carried out between December and January which pointed to six recent cases of insolvency in payments or electronic money institutions, some of which have gone on for three years or more and in only one case had people received some of their money back. The consultation only attracted 15 responses out of those 1,300 companies, so it was fairly thin, although in fairness, I think that the responses included one or two from trade bodies, so they may have represented a number of firms. Most of the responses broadly agreed with the Government’s action, so I have just few questions for the Minister.
The regulations relate to insolvency and ensuring continuity of service and payments where insolvency takes place. The regulations talk about an asset pool and the administrator having governance over that. The question in my mind goes back to Mr Micawber, and what if the asset pool is too small for the liabilities? Is that not the definition of insolvency, when someone has liabilities of 20 shillings and income or assets of 19 shillings? How can the administrator guarantee that people will get their money back from the asset pool if, by definition. the firm is insolvent? Are we talking about getting so many pence in the pound, rather than the full investment back? Or is it a question, as is often the case in insolvency, of a hierarchy of creditors, where some people—often the taxman—are first on the list and others are lower? What happens if the asset pool is too shallow to cover the liabilities.
The Financial Services Compensation Scheme does not cover the institutions in question, and that was raised in the consultation. Why is that? At least one respondent argued that the FSCS should have that remit. On capital requirements, I am sure that, like me, the Minister is regularly lobbied about how much capital institutions have to hold. One insurance policy against insolvency is to hold a reasonable amount of capital. Has the Government considered—I can hear the industry objecting to this as I speak—increasing the capital requirements to make insolvency less likely and to make the companies more resilient if they run into trouble?
As the Minister said, the regulations propose a bar date—a cut-off point—to avoid a long drawn-out process that takes years to conclude. The logic of that is completely understandable, but how will the administrator be guaranteed to make reasonable, in fact extensive, efforts to contact people who might have claims? The last thing we want is someone coming along and saying, “I never knew about this. I didn’t know it was insolvent. I have got assets in this”, and then a legal case pursuing.
Some of the firms will be involved in transferring remittances. That is a very important business for the UK as we have a population with roots all over the world. How will the regulations help consumers not to be hit with excessive costs in the event of foreign exchange transactions? That is already an issue, which we have debated in the context of other SI. If someone is sending a few hundred pounds to a relative possibly in a country that is much less wealthy than ours, the last thing they want is for a lot of that to be eaten up paying out to administrators.
Finally, when it comes to transferring assets, how will the insolvency practitioners deal with assets that are held abroad? Some of the organisations are international, with assets in the UK and assets abroad. Does the proposed regime just apply to UK assets or is the intention that the resolution process will also include assets abroad?
John Glen
I thank the right hon. Gentleman for his characteristically forensic but clear questions, and I am happy to try to respond. He raised a number of reasonable points about the nature of the provision for reimbursing customers who find themselves dealing with an insolvent provider. He also picked up on the fact that the institutions in question do not form part of the FSCS levy and the compensation scheme from that. However, they are subject to the Payment Services Regulations 2017, PSRs, and the Electronic Money Regulations 2011, EMRs. They impose a different regime, which is a safeguarding requirement to protect customer funds received for the provision of a payment service or e-money. That means that the firms dealt with under today’s SI must put a certain amount of capital aside or have an insurance provision for safeguarding. They are not completely without some provision, but it is just different from the levy pool that comes out of the FSCS, levy payment and membership of that pool.
The right hon. Gentleman asked about the cut-off process, the bar, and how reasonable that would be. Of course, that is underpinned by a court process and one of the provisions in the regulations is for the FCA to be a participant in that, to verify the exhaustive nature of steps taken to identify customers who will be subject to some of the pay-outs.
The right hon. Gentleman also asked about foreign exchange and the transfer of assets abroad. Those matters would ordinarily come under the provisions of the FCA, but I will look into those issues further and write to him on those two specific points. My instinct is that there is no distinction in terms of different treatment for different customers.
I am confident that the legislation will produce better outcomes for UK businesses and consumers in the payments and e-money sectors. The right hon. Gentleman rightly acknowledged the fast-evolving nature of the industry, and it is vital that we in the UK ensure that our financial services sub-sectors have appropriate consumer protection measures. I look forward to the full implementation of the regime. I think that it will provide greater assurance to consumers and a clearer pathway to resolution when firms go under. I commend the SI to the Committee.
Question put and agreed to.
Draft Immigration and Nationality (Fees) (Amendment) Order 2021
Draft Immigration (Collection, use and retention of Biometric information and related Amendments) Regulations 2021
(3 years, 6 months ago)
General CommitteesRead Full debate Read Hansard Text
The Chair
Before we begin, I remind hon. Members to observe social distancing and sit only in places that are clearly marked. I also remind Members that Mr Speaker has stated that masks should be worn in Committee unless Members are exempt or are speaking. Hansard colleagues would be most grateful if Members could send their speaking notes to hansardnotes@parliament.uk.
Tom Pursglove (Corby) (Con)
I beg to move,
That the Committee has considered the draft Immigration and Nationality (Fees) (Amendment) Order 2021.
The Chair
With this it will be convenient to consider the draft Immigration (Collection, Use and Retention of Biometric Information and Related Amendments) Regulations 2021.
Tom Pursglove
It is a great privilege to serve under your chairmanship, Mr Robertson. I start by saying that I am sure that the whole Committee sends our very best wishes to the Under-Secretary of State for the Home Department, my hon. Friend the Member for Torbay (Kevin Foster), whom I am standing in for today. He has had a family bereavement, and we send him and his family our very best wishes. They are very much in our thoughts at this difficult time.
The legislation that we are debating concerns two linked elements of our immigration system: the use of biometrics, and the fees regime. I will take each of them in turn. The use of biometric information enables us to check and confirm the identities and immigration status of foreign nationals who come to live or work in the UK. The Government are pursuing an ambitious programme of change to deliver a fair and firm immigration system that is much easier for customers to navigate and works in the national interest. Through the biometric regulations, we will update our powers so that fingerprints can be enrolled once and retained for subsequent reuse, saving the applicant the inconvenience of needing to re-enrol every time they make a new application to come to or stay in the UK, or to replace immigration documents. As members of the Committee will appreciate, no longer needing to travel from places such as the Shetland Islands or the Scilly Isles to the nearest service centre will be a major improvement for customers. The regulations also provide us with the ability to restart the fingerprint retention period when biometrics are reused for an immigration application, to avoid deleting them prematurely.
The regulations will support the move from physical to digital evidence of immigration status. We live in a digital age, in which businesses and customers expect a swift, user-friendly experience. With that in mind, we are developing a biometrically enabled digital immigration system, underpinned by security and efficiency, that will provide real-time evidence of immigration status online. And with that in mind, the regulations clarify our powers to use and retain biometric information obtained from asylum seekers and foreign nationals who are unlawfully in the UK, require leave but do not have it, or lack adequate documentation.
The fees order sets out the services that we charge for and the maximum amounts that we are able to charge for immigration and nationality products and services. I make it clear at the outset that no fee levels will be changed through the order before us today. Fee levels are amended through immigration and nationality fees regulations, which are laid before Parliament separately and are subject to the negative procedure.
The changes in the fees order ensure that definitions within the legislation are flexible enough to enable us to evolve our products and services to meet the demands of our customers. The fees order will amend the definition of “transfer of conditions” to ensure that it covers the need to update digital services as well as changes to physical documents. The change to the definition of “premium services” will provide the Home Department with greater flexibility to offer a wider range of optional premium services relating to immigration or nationality where there is a demand to do so. The proposed changes do not introduce any new services at this point or impact on standard services. The fees order also ensures the related provisions in the Immigration and Nationality (Fees) Regulations 2018 are updated to reflect those definitions. In reusing biometric information, the Department continues to incur processing costs, which need to be met. The fees order will therefore clarify and give assurance that the power to charge for biometric enrolment also includes the power to charge for biometric reuse.
I realise that the draft regulations both cover somewhat technical areas, but they bring with them a big improvement for those using these services. I hope I have been able to explain how they will help facilitate our ambitious journey towards a biometrically enabled digital immigration system and ensure that the fees we charge for border, immigration and nationality services are supported by the right framework.
Bambos Charalambous (Enfield, Southgate) (Lab)
It is a pleasure to serve under your chairmanship, Mr Robertson. I begin by associating myself with the Minister’s remarks about the Under-Secretary, the hon. Member for Torbay. Our thoughts and prayers are with him and his family at this difficult time.
As the Minister has explained, the draft fees regulations propose a phased approach to online platforms for evidence of immigration status by amending the definition of the “transfer of conditions” to ensure it covers digital as well as physical documents. It increases the charge of £19.20 to enrol applicants’ biometric information for each application for a period of leave to remain, to a one-off charge of no more than £30 for the reuse of biometrics. It redefines and expands the term “premium services” to cover optional immigration and nationality services generally, not just applications—for example, for Border Force officers checking passports on carriers at sea, which some carriers choose to pay for. The draft order makes amendments to make clear that the expression “premium services” has the same meaning as in the 2018 Regulations and the Immigration and Nationality (Fees) Order 2016, and amendments to the definition of “transfer of conditions”.
The Opposition have previously stated our serious concerns about the overall high cost of immigration and nationality application fees. The one-off £30 fee may seem reasonable to us, but considering the financial circumstances of applicants, it may be burdensome on some applicants. Has an impact assessment been done on the effect of the increase on people who may have a very low income, if any at all, when seeking to make the application? We also have concerns about the lack of physical proof for immigration status and have made that point on previous occasions.
The draft regulations on biometric information allow the retention of a vast amount of information, to be stored for a period increasing from 10 to 15 years. It also grants the Secretary of State huge powers. We have serious concerns about the draft regulations, but it is difficult to assess the impact, because there is a lack of transparency on what the new digital orders will look like in the future, what legal safeguards will be in place to protect people’s privacy and their data, and how the process will interact with the digital hostile environment that previously existed. We also have questions about the use that contractors in removal centres will have of biometric information and the safeguards around the contractors’ processes in managing that data.
The Secretary of State’s powers will be draconian. For example, the draft regulations allow the Secretary of State to order someone to whom the regulation applies to attend a place to have their photograph taken.
We have further concerns about the deletion of data. We have heard previously detail from the Windrush scandal of people having their boarding passes destroyed. We have concerns about how long the data will be held and the Home Secretary’s power to turn off the tap and people losing all their data at the switch of a button.
The Opposition not only have concerns about safeguards, but about people’s immigration status. Currently, people have physical documents to prove their status, but what happens under a solely biometric system if someone is unable to produce a physical document? Does that mean they will lose out on various benefits, the right to rent a property and the right to work, even? Those data changes may be made without their notice. If any changes are made to someone’s immigration status, what safeguards will be in place to notify them? Will they receive a letter or an email? How will that work?
The Opposition will not oppose the statutory instruments, but we would like our reservations to be noted. I would be grateful if the Minister could respond in writing, not necessarily right now, to our valid concerns. We will not push the matter to a vote but want our concerns to be noted.
Tom Pursglove
I am grateful to the shadow Minister, as ever, for his constructive comments and questions. I will make a number of observations in response, but if I miss anything, I am sure that the Under-Secretary, my hon. Friend the Member for Torbay, will be more than happy to follow up in writing, because I am conscious that the shadow Minister asked several probing questions.
On fees, it is important to make the point that the fees order is an essential part of the immigration fees framework. It enables the Department to set fees via any future regulations. The changes in the order we are debating will ensure the right framework is in place to support the ongoing fees that we charge for border, immigration and nationality services. It is crucial to recognise, however, that the fees order is not creating any new services. The change to the definition of “premium services” made in the order will provide the Department with a greater flexibility to offer premium services relating to immigration or nationality in a wider context of circumstances, and as things develop. We are not proposing any new services at this point in time; that is something that we may look at again in due course. The existing fees will not change, however, as a result of amending the definition of “premium services”, and those services that we do offer will continue to remain optional.
Everybody is very mindful of the security of data. That is a pressing concern, and quite understandably given the nature of the world that we live in. The shadow Minister is right to ask about such security. Obviously, we have collected biometrics for immigration purposes for many years—in fact since 1993—and we store biometric information very securely on the immigration and asylum biometrics system. That is a different system from the one with which there have been issues relating to police data and its loss earlier this year. There are strict controls on how biometric data may be used, and when such information must be deleted is set out in legislation. The draft SI will, if approved, change the retention regime but it will not alter where that information is stored or how that data is protected.
Biometric records due for deletion are subject to a three-step process before they are permanently deleted from the system. IABS has a number of mechanisms to protect the data it holds and that data is stored in secured locations, accredited to store and process UK Government protectively marked information. I hope that offers the shadow Minister some comfort about the safeguards in place to ensure that the data is handled securely and correctly, as people across the country and visitors to it would rightly expect.
The shadow Minister referred to people being able to demonstrate their status so as to meet necessary requirements, and I think it is important to say that extending the period of data retention should make it easier and more convenient for people to be able to demonstrate their status so that they can successfully access services.
On the confirmation of status, it is now standard practice to issue letters to demonstrate and clarify people’s status. They are then able to retain those letters for future purposes, and that is helpful if they are ever required to demonstrate their status for any particular purposes, including when interacting with government more generally.
If I have missed any points in response to the shadow Minister, I am sure that the Under-Secretary, my hon. Friend the Member for Torbay, will be delighted to write to him with more detail.
In conclusion, the focus of the proposed legislation is to further simplify, standardise and modernise a range of provisions to provide a clearer, more consistent experience for those who engage with the immigration system. As we roll out biometric reuse, applicants will no longer have to attend repeat biometric enrolment appointments. Home Office teams will be able to focus on processing applications instead of waiting for applicants to attend a biometric appointment to enrol their biometrics both in the UK and overseas. We will continue to phase out less secure physical documents that are easily lost and need to be replaced. We will simplify the process for gathering biometrics and standardise how we use and retain them in what is a key strand of our drive to deliver a fully digital system.
The changes to the fees order will provide a stable legal basis and ensure that it is fit for purpose for services and products developed gradually. I emphasise again, and to respond to the shadow Minister, that the changes will not amend specific fees, and any future fee changes will be subject to approval by Parliament, and no doubt future debate of any such regulations.
Throughout the lifespan of the fees order, immigration fees will continue to be reviewed and updated where necessary, and all existing Government oversight arrangements will remain in place. As such, I commend the order and the regulations to the Committee.
Question put and agreed to.
DRAFT IMMIGRATION (COLLECTION, USE AND RETENTION OF BIOMETRIC INFORMATION AND RELATED AMENDMENTS) REGULATIONS 2021
Resolved,
That the Committee has considered the draft Immigration (Collection, Use and Retention of Biometric Information and Related Amendments) Regulations 2021. —(Tom Pursglove.)