Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Lord Vaux of Harrowden

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, I introduced a number of amendments on the subject of authorised push payments fraud in Committee. At the time I said I was broadly happy with the Minister’s responses but would look to return to the reporting question again, which is what Amendment 94 does. I should say at the outset that I support what the Bill is trying to do in respect of APP fraud to make it easier, and in particular fairer, for victims of APP fraud to get their money back. Before I go any further, I remind the House of my interest as a shareholder of Fidelity National Information Services, Inc., which owns Worldpay.

My new Amendment 94 has two elements to it. First, it would introduce requirements on the PSR to report annually on the impact that the reimbursement requirement had had on consumer protection and on the behaviour of payment service providers. Secondly, it would effectively create a league table to enable consumers to see how each bank is actually performing both in preventing fraud and in reimbursing victims.

On the first point, the annual impact report is necessary because the mandatory reimbursement requirement could have unintended consequences that might damage consumer protection. I shall give a couple of possible examples of that. First, there is the possibility of moral hazard. If the mandatory requirement means that consumers start to take less care about protecting themselves because they will be repaid anyway, that could have the undesirable consequence of actually making it easier for the fraudsters to commit fraud and so actually increase levels of fraud. While, as we discussed in Committee, we must not put the blame on the victims, there is a balance to find in this area to avoid making it easier for the fraudsters while improving consumer protection and outcomes. We will know whether we have found the right balance only when we start to see the results.

A second example might be that the banks change their behaviour in an undesirable way. Rather than improving their fraud detection and prevention processes, they might simply decide that the easiest thing to do would be to stop providing services to people whom they see as being at the highest risks of fraud in order to reduce their potential reimbursement liability. I think many Members of this House have seen similar behaviour in respect of PEPs—politically exposed persons—where, rather than undertaking sensible risk-based steps, banks have on occasion just decided that it is too difficult or expensive to deal with PEPs and have refused to open accounts or have even closed accounts. We will come to that later today, but it is a good example of a well- intentioned risk measure having undesirable consequences. In the case of APP fraud, if the banks see it as too great a financial risk to provide banking services to those deemed to be at a higher risk of fraud, then we might see a whole swathe of more vulnerable people unable to obtain banking services.

These are just two examples, but I hope that they demonstrate the importance of the PSR keeping the impact of the requirement for mandatory reimbursement under regular review and amending it if it turns out to have unintended negative consequences. Reporting on this regularly and publicly will ensure that the impact assessment is robust.

Turning now to the second element of the amendment, the requirement to report annually on the performance of the banks, a major criticism of the current voluntary reimbursement code is that it is completely non-transparent. While numbers are published, they are anonymous. Consumers cannot see which banks are behaving best, and which are behaving worst, unless, as TSB does, they tell us voluntarily. The TSB example is encouraging—it is using its 100% reimbursement policy as a selling point. Introducing competitive good behaviour is highly desirable, and this amendment would help achieve that.

The amendment would effectively create an annual league table that would enable consumers to see which banks have the lowest levels of fraud—which will give an indication of how good they are at detecting and preventing fraud—which banks are better and quicker at reimbursing victims when fraud occurs, and, by including the appeal information, which banks make it more difficult for victims. That would allow consumers to take this information into consideration when deciding whether to stay with their existing bank or when considering opening a new account—something that would otherwise not be possible. That would, I hope, provide a real competitive incentive for banks to change their behaviour both in detecting and preventing fraud and in treating victims promptly and fairly.

This would not introduce a significant additional burden; the PSR will have all this information anyway, so reporting it is not a significant job. However, the benefits to consumers of making this information public are potentially significant.

When we discussed this in Committee on 13 March, the Minister stated in relation to the impact assessment that the PSR

“has committed … to a post-implementation review”

and that the Government would also

“monitor the impacts of the PSR’s action and consider the case for further action where necessary”.

That does not go far enough. Fraudsters keep changing their business models in reaction to actions by industry and the authorities, so it is essential that this is kept under continual review rather than only a one-off, post-implementation review. It is also important that the impact assessments are published. Can the noble Baroness provide any greater comfort in those respects?

On the league table, the noble Baroness said on 13 March that the PSR

“is currently consulting on a measure to require payment service providers to report and publish fraud and reimbursement data”.—[Official Report, 13/3/23; col. GC 166.]

It is now nearly three months later, so can the noble Baroness provide an update on whether this consultation has progressed and whether the data will in fact be published? It would be better if such data was published by a single source such as the PSR rather than piecemeal by payment service providers. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I support this amendment and I can be relatively brief. It is important not only to collect the statistics but also at times to dig underneath to see how they might be being gamed. From personal experience, I know of instances where banks are treating microbusinesses more strictly than they are treating consumers, saying that a business should know and therefore rejecting them out of hand at the first time of asking, if I can put it that way. I have heard, in a similar case, stories of someone making contact by telephone repeatedly, their inquiry getting lost and the person having to go through the whole story with a case handler multiple times, the strategy obviously being, “Let’s try and make them give up”. That was with a very large bank; I will not name it because I do not have absolutely all the detail. Therefore it is quite important that different criteria are not being used between sole traders and individuals when it has already been determined via the ombudsman that both have a route.

Economic Crime and Corporate Transparency Bill

Debate between Baroness Bowles of Berkhamsted and Lord Vaux of Harrowden

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to move Amendment 53; I hope to be fairly brief. It is related, in a way, to Amendment 48A in the name of the noble Lord, Lord Coaker, which we spoke about earlier. In effect, it attacks the issue of unique identifiers from the opposite direction.

Clause 67(3) ensures that the unique identifiers allocated to companies and others, including ACSPs, are not available on the public register. I was rather surprised to find this. My amendment is really a probing amendment to find out the rationale for hiding unique identifiers and discuss whether that is the right thing to do. It seems to me that the unique identifier would be a helpful tool to assist civil society organisations, journalists, analysts and, indeed, AML regulators to discover trends and connections in the information held on companies on the register.

One person can easily have a number of versions of their name—A Jones, Andrew Jones, AJ Jones and so on. It is not necessarily dishonest. I have two names myself: my title and my real name. I hope that that is not dishonest. My amendment would make it much easier to search using the unique identifier and would avoid the problems of potentially having multiple names or versions of names and people being missed off. It would allow an AML regulator quickly to search for all situations where a particular ACSP has acted, or a journalist to identify ACSPs that act regularly for companies in particular industries, and to be sure that they have caught all the instances.

When I met the Minister previously, for which I thank him again, he explained that the unique identifier is used as the login for the relevant entity. If that is the case, I understand why it should not be public, but I strongly question whether that is sensible. Very few organisations would use a number such as a unique identifier for login purposes; it would go against commonly accepted security practices. The Government do not do it in other systems, as far as I am aware. Would it not make more sense for the unique identifier to be public, and therefore useful, to allow the greatest transparency that I have described and to have a more secure method of logging into Companies House accounts? I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.

I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.

Pension Schemes Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Lord Vaux of Harrowden

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Bowles of Berkhamsted [V]]

My Lords, I have signed my name to both these amendments, which follow on from significant debate in Committee. I agree with what the noble Baroness, Lady Drake, said about how Amendment 8 bolsters the importance of ensuring adequate finance for the administration of a scheme in all circumstances. It is necessary to have certain requirements specified and agreed in advance rather than to rely on negotiation at what might be a difficult time or, indeed, where it might be impossible. I therefore wholeheartedly support Amendment 8.

Amendment 32 is important and reflects the matter of general fairness and, in particular—although it is not specified—intergenerational fairness, which was discussed in Committee. My noble friend Lord Sharkey will explain further, but I wish to make the point that we should remember that CDCs have shared risk, that their strength is that returns can be more predictable, and that there is intergenerational solidarity so that good times and bad are to some extent smoothed. That solidarity cannot be undermined by allowing market highs to be carried away by those who may chose to leave the scheme. It surely must be possible to devise mechanisms, whether by way of buffers, conservative valuations, a delayed retained part or something else, to prevent the problem that those wishing to transfer their pensions out essentially ruin what is left for everybody else. The point is that fairness has to extend over more than a snapshot in time. That is the only way that you will have fairness in the sense of shared risk to all the members.

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I wish to support Amendment 32, tabled by the noble Lord, Lord Sharkey, to which I have added my name. I should add that I also wholeheartedly support Amendment 8, but I will restrict my comments to Amendment 32.

While there seems to be general support for the introduction of this new type of pension—collective money purchase schemes, or CMPs; I am going to try very hard not to call them CDCs as we go through this—they are not without risk. As we discussed at some length in Committee, one of the greatest risks that is often raised in respect of CMPs relates to intergenerational fairness. Indeed, at the extreme, in a situation where no returns are being earned but pension levels are maintained for existing pensioners, the pensions being paid would be dependent on the funds being put by new joiners, as in a Ponzi scheme. That is very extreme, as I say, but it demonstrates that there is the possibility of one cohort being disadvantaged by the treatment of another cohort. If existing pensioners are paid too much, those currently paying in will suffer, and if the scheme is overcautious in what it pays out to pensioners, pensioners will suffer and current workers will gain.

This is not theoretical. We only need to look at what is happening in the Netherlands to see that the question of whether to cut benefits when returns are not as good as expected is a real and current issue. In a standard defined contribution scheme, the risk is not pooled, so the issue does not arise. In a defined benefit scheme, the matter is dealt with by the employer making up the difference. However, in a CMP, there is no possibility of that happening. If you want to maintain the level of pensions when returns are low, the future pensions of those still contributing will be impacted and vice versa, so the issue of intergenerational fairness is specific to CMP schemes.

It is also worth pointing out that CMPs have implications for not only intergenerational fairness but fairness more generally. For example, as the noble Baroness, Lady Bowles, pointed out, if someone wants to transfer their fund out of a scheme, how do you value their share? The benefits that arise from the scheme are uncertain, being targets only, so if you value a transfer based on the target benefits, which seems to be what is proposed, that will not take account of the risk that those benefits may not be achieved. In that situation, the person transferring out is getting a better deal than those staying, unless that risk is taken into account in the transfer valuation. The issue is complicated further because of the pooling of longevity risk in a CMP. For example, if someone has just a couple of years to live, there would be a strong incentive for them to take their money out to the detriment of those staying in.

Given that fairness is the single most commonly raised risk that relates to CMPs, it is curious that there is no explicit mechanism in the Bill to deal with it. In our previous discussions, we were pointed in the direction of Clause 18 to see how the matter is dealt with, but in fact that clause sets out only how benefits and so on will be calculated and says that regulations will be made in that respect; nowhere does it mention the critical question of fairness. I imagine that that is because it has been based on other pension legislation, which, as I said, does not suffer from this risk.

Amendment 32 introduces as very simple means by which to ensure that intergenerational fairness and fairness more generally must be assessed by the trustees. Given the importance of this issue, I urge the Minister to consider it really seriously.

--- Later in debate ---

[Baroness Bowles of Berkhamsted [V]]

My Lords, I shall speak briefly to each amendment in this group. The noble Baroness, Lady Altmann, has a series of amendments on data accuracy—there was also one in the first group—which I have signed. It is important to have accuracy, especially when there are matters of significant value and security. Ensuring that records are accurate and are kept up to date should be in-built from the start of operations, and as the dashboard is starting out there is no reason not to take that precaution.

I have expended time and energy tracing and correcting inaccurate records on pensions and with banks. Key causes of corruption and inaccuracy have been that information was not transferred accurately, or sometimes was not entered accurately in the first place but particularly when legacy systems did not join up with a new system. It is immensely important that pensions information is not lost or inaccurate, as that can also open the door to potential scams or other sales pressures built around tracking pensions or correcting pension data.

With regard to the pensions dashboard, I agree with what has already been laid out by the noble Baroness, Lady Drake, so I will not repeat it. Transactions are the dangerous point. They are certainly not where the focus should be as dashboards are set up and their operations tested, but it is going to be very tempting for commercial dashboards. Commercial companies may find a way to get around that, but this information would give the FCA as the regulator a direct guide to what is to be expected so that it could take action against any circumvention of the intentions of the amendment. I therefore support all the amendments in this group.

[Lord Vaux of Harrowden [V]]

My Lords, I support all three amendments. The grouping is slightly odd, mixing the question of transactions with that of data accuracy; there is a relationship but it is only tangential. The noble Baronesses, Lady Drake, Lady Altmann and Lady Bowles, have already explained the reasoning for the amendments so I shall try to be brief.

Amendment 52 would prevent a dashboard service from engaging in financial transactions. The matter has been well explained by the noble Baroness, Lady Drake, so I will just say that the risks around pension-related transactions happening without proper advice are very well known. Dashboards are being created primarily for the purpose of allowing people to obtain better information about their situation. That information will be helpful when deciding whether to carry out some transactions but it does not in any way negate the need for proper advice, so allowing dashboards to become transaction platforms would make ensuring that proper advice had been taken much more difficult. At least until they have been fully established and the implications well understood, it really must make sense to prohibit dashboards from becoming transactional platforms.

The other two amendments along with Amendment 13, which was discussed in the first group, are about establishing appropriate processes to ensure the accuracy of the data on the dashboard. It almost goes without saying that a dashboard containing inaccurate information may actually be more damaging than no dashboard at all; I apologise for the echo of something else there. These dashboards are intended to help people and their advisers to make decisions about their future pensions. Inaccurate data will lead to wrong decisions being made. It is therefore critical that data must be fully and regularly checked and audited, so I urge the Minister to accept these amendments.