Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024
Debate between Baroness Blake of Leeds and Earl of Courtown
Baroness Ritchie of Downpatrick (Lab)
My Lords, I take this opportunity to thank my noble friend the Minister for explaining clearly what this statutory instrument is about. I declare an interest as a member of the Secondary Legislation Scrutiny Committee. I have some questions, about which I have already alerted the Minister. I actually alerted my noble friend Lord Livermore, thinking he would be answering on this, but I think he has passed them on.
There is a concern that, while it is laudable that no charges will be involved for claimants who make direct contact with the Financial Ombudsman Service, which has proven to be an excellent service for people who have particular issues in the financial world, notwithstanding that, some people like the services of professional representatives. A recent survey found that 43% of people were likely to be vulnerable prior to financial scams—we are all beset by them—and 85% became vulnerable in the aftermath as the reality of the situation hits them and their mental health may deteriorate. Will the Minister outline the real reason for eradicating, in many instances, the middle person, the professional representative? That would be very useful.
As we know, all professional representatives are regulated either by the Financial Conduct Authority or the SRA. Claims management companies are explicitly forbidden by regulations from bringing cases that do not have “a good arguable case”, or that are “frivolous or vexatious”. Therefore, firms are required to learn from the FOS approach to ensure that they do not continue to submit cases with an unrealistic chance of success. So why is the FOS not pushing regulators to enforce this more? The FOS would be better highlighting this to the regulators, which have the power to take heavy action against these firms. The ombudsman has the power to reject poor-quality submissions. Why is it not using this to a greater extent against the 10 firms that are particularly clogging up the system?
Finally, could my noble friend the Minister advise, or come back by way of writing, on whether the Government intend to ameliorate the situation? Sometimes, people like the services of professional agents, notwithstanding their level of financial security, and would appreciate that, and they do not think that it is fair that the cost that has been levied on the professional claims person should be passed on to them.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and appreciate the very full description of them that the Minister gave. As she said, they enable the Financial Ombudsman Service to amend its rules to charge case fees to claims management companies and legal professionals on behalf of complainants when a customer launches a complaint against a financial services firm.
On these Benches, we believe in the importance of fair and justified financial regulation and the ability for customers to issue a complaint against financial services firms when necessary. We recognise the benefit of this legislation, which seeks to address the economic benefit gained by intermediaries from bringing a case and the large volumes of poorly evidenced complaints submitted to the FOS.
We welcome the Government’s continuation of our work in which we introduced the Financial Services and Markets Act 2023, which enabled the Government to add to the list of persons to whom the FOS can charge fees. I would like answers to a couple of questions, but the Minister can write to me if need be. What measures are His Majesty’s Government taking to ensure that genuine and well-evidenced complaints continue to be submitted to, and heard by, the Financial Ombudsman Service? Can the Government confirm that this legislation will not result in increases in fees paid by consumers who have submitted a complaint?
I was interested in the points raised by the noble Baroness, Lady Ritchie, and look forward to hearing the Minister’s responses to them. As I said, we support these regulations, and I look forward to the response from the Minister.
Baroness Blake of Leeds (Lab)
I thank both my noble friend Lady Ritchie and the noble Earl, Lord Courtown, for their comments, in particular their close consideration of these draft regulations. It is important that everyone in the Committee has an opportunity to raise important points. I re-emphasise that this SI will play an important role in ensuring that the Financial Ombudsman Service can focus on promptly resolving consumer complaints and reduce the impact of spurious complaints on financial services firms.
I thank my noble friend Lady Ritchie for her detailed questions. I know from her comments earlier, before we came into this Committee, that her primary concern is for the consumer and to make sure that the necessary protection is in place. By way of reassurance, we are looking at the needs of vulnerable people, in particular, to make sure that they will not be disadvantaged by this amendment; that is the crux of what we need to address today.
I re-emphasise that the Government are clear that all consumers should be able to access the FOS without the need for professional representative support. Serious consideration has been given to that while developing this policy. The final outcome, as I mentioned earlier, is that charities, family members and advisory organisations will not be charged for this service; that is an important consideration. Another aspect here—it is reassuring, I hope—is that the FOS has a dedicated accessibility team as well as the additional support team, working specifically to ensure that complaints with additional needs are added. I hope that that goes some way to providing the reassurance sought.
The other question is: should the Financial Conduct Authority not be doing more to regulate professional representatives effectively in the first place? It is a very reasonable question. The Financial Conduct Authority and the Solicitors Regulation Authority play an important role in regulating, respectively, claims management companies and law firms. The Government strongly support the relevant regulators in taking robust action to tackle poor claims management behaviour wherever it arises.
There is an important point here that needs to be firmly pointed out. We re-emphasise: all consumers can access the service free of charge and without the need for any professional representative support. Where consumers choose to use a professional representative, there are rules in place to limit the amounts that these firms can charge. The FCA, which regulates claims management companies and professional representatives, and the Solicitors Regulation Authority, which regulates legal professionals, already restrict the fees that a professional representative can charge to consumers through their fee cap rules. The FCA has agreed that any fee paid by professional representatives to the Financial Ombudsman Service will be included in this cap; this will prevent fees being passed on to consumers in cases where the representative is charging at the maximum level, which the FOS understands to be the case already for most professional representatives.
If there is a feeling that I need to follow up in writing, I will of course do so, but, with those closing comments, I hope that we can move forward.
Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024
Debate between Baroness Blake of Leeds and Earl of Courtown
Lord Davies of Brixton (Lab)
My Lords, I recognise the circumstances in which these regulations have been brought forward. They are part of the Brexit dividend that we end up discussing—this carrying forward of regulations as a consequence of leaving the single European regime. I will use them as an opportunity to raise an issue of concern about the reassurance provided for people’s pensions.
As noble Lords will know, the benefits held by occupational pension schemes—specifically defined benefit schemes—are increasingly being shifted away from those schemes; they are being wound up. The benefits are being protected in one way or another. An increasingly popular way of protecting members’ benefits following the winding up of a scheme is bringing them out in the form of annuities. The annuity market is commercial, and I think people who hold annuities are often surprised at the way their futures are treated as a form of commodity to be bought and sold on markets and—relevant to these regulations—to be reinsured in ways that leaves them concerned about the security afforded for their future pensions. The particular concern, and these regulations are directly relevant, is those annuities where the reinsurance arrangements are dealt with by overseas entities. The distance between people’s expected future pensions and where the ultimate security for their pension rights lies is giving rise to increasing concerns.
There were suggestions earlier this year that the Bank of England would tighten supervision of life insurance—the annuity offices’ use of what are called funded reinsurance markets—and the extent to which this approach to securing people’s pensions will lead to riskier benefits securing members’ rights and riskier securities holding members’ rights, and the extent to which the ultimate protection is achieved not under UK provisions but by the provisions placed on overseas reinsurance facilitators. I raise that in the context of these regulations. It is an issue on which I have not given notice to my noble friend so I am not expecting an immediate response, but perhaps she could commit to giving some attention to the concerns held by ordinary policyholders about where, ultimately, the security for their benefits ends up when they are bought out of their occupational pension schemes. If necessary, perhaps we could have a meeting to discuss this in greater depth and with greater notice.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and thank the Minister for her very clear description of their use and how they will be put into practice. We on these Benches recognise the importance of this legislation in ensuring that insurance firms act safely and responsibly. The legislation also seeks to minimise the likelihood that insurance firms will come into financial difficulty. This instrument will allow for this by making a series of amendments to legislation—that is, to make certain that the UK’s insurance regulatory regime functions as planned following the implementation of the Solvency II reforms and the revocation of assimilated EU law at the end of this year.
The previous Government, following engagement with industry, created detailed plans to reform Solvency II, and we welcome this Government’s decision to continue our plans. These reforms were designed to allow for a prosperous insurance industry, while ensuring the soundness of firms by demanding that insurers hold enough capital to withstand. I have just one question for the Minister: can His Majesty’s Government confirm what conversations they are having with the insurance industry to ensure that these reforms are implemented properly? I again confirm that His Majesty’s Opposition welcome these regulations, and I look forward to the Minister’s response.
Baroness Blake of Leeds (Lab)
My Lords, I thank noble Lords for their interest in this area, which is exceptionally important to putting ourselves in the best possible position to take advantage of the different agendas that the Government are moving on.
My noble friend Lord Davies was absolutely correct that I am unable to answer his specific questions today —they are outside the scope of this SI. However, HMT officials would be pleased to write to him. I am sure that, if there is a need for meetings, we can move forward.
I welcome the comments of the noble Earl, Lord Courtown. I absolutely assure him that there is continued engagement with the industry at ministerial level. There is a recognition that it has taken a significant time for the process to get to this point. We are almost at the last hurdle, and it is crucial that we keep everybody informed and successfully move forward towards its conclusion at the end of the year.
I am sure the Grand Committee will join me in supporting these amendments to ensure a smooth transition to the reformed Solvency II regime.