Health and Care Bill

Baroness Penn Excerpts

Lords Hansard _ Part 1 & Report stage
Wednesday 16th March 2022 Lords Chamber

[Lord Naseby (Con)]

I was suggesting that we do carry on because the evidence is there in government data, not in a forecast from the noble Lord, Lord Crisp, or some minor operation that he—

[Baroness Penn (Con)]

I remind noble Lords that only short questions of elucidation are allowed on Report.

[Baroness Walmsley (LD)]

Many thanks. I suggest to the noble Lord, Lord Naseby, that a lot more people will be dead from tobacco if we carry on at this rate. He suggested that, just because this measure was not in the Conservative Party’s manifesto, perhaps we should not carry it forward. Well, the Conservative Party does not have all the best ideas, although I congratulate the Government on the sugary drinks levy, which has been highly successful. We support the polluter pays amendment introduced by the noble Lord, Lord Crisp. I might call it the killer pays amendment because, make no mistake, this is a killer substance.

I happen to live in Wales so I want to raise a matter that has not been mentioned yet. I am glad that the Welsh Government have committed to a smoke-free Wales by 2030. However, although England announced its intention to go smoke-free by 2030 two years before Wales did, Wales has leapt ahead as regards action, which is why I hope that the Minister will either accept Amendment 158 or give adequate assurances. In the Green Paper of July 2019, the Government said:

“Further proposals for moving towards a smoke-free 2030 will be set out at a later date.”


Approaching three years later, still nothing has happened. There are no further proposals and no funding has been announced. In contrast, Wales has published concrete proposals, but many of the interventions require action from the UK Government. Examples include the polluter pays funding mechanism, which could help to fund tobacco control in Wales; raising the age of sale; and putting warnings on cigarettes and pack inserts. I am concerned that, by being so slow, the UK Government are undermining the ability of the devolved Administrations to achieve their smoke-free ambitions. We will support the noble Lord, Lord Crisp, if he chooses to put this amendment to a vote.

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[Baroness Wheeler (Lab)]

My Lords, we had a good debate in Committee on the issue of self-care and the management of health conditions, particularly on its importance as a key part of the primary care pathway. This was underlined in diabetes care and, as I also emphasised, in the care and treatment of people with rare diseases, most of whom are living with lifelong conditions. As vice-chair of the Specialised Healthcare Alliance of charities supporting this key group of patients, I know that they often do not feel sufficiently supported in terms of care and support and health and system information, and with physical and daily living.

As the two noble Lords have stressed, the Health Foundation’s research on the effective self-management by patients has shown a significant reduction in the need for emergency admissions to hospital and in A&E attendances, and fewer GP appointments. In this context, Amendment 165 makes a great deal of sense. If patients with, for example, rare diseases receive appropriate support to manage their less intensive care needs, then promoting self-care has the potential to help them prevent their conditions from deteriorating, to improve their lives and to reduce demands on the NHS, as the noble Lords have stressed.

We therefore strongly support the need for the development of a national self-care strategy, starting with awareness raising among primary and secondary children on how to self-care, and with appropriate staff and management training of healthcare professionals. Improved technologies, as underlined by the noble Lord, Lord Clement-Jones, especially those developed during the pandemic, will have a key role in broadening access to effective self-care and ensuring the better support from primary and community pharmacists that we all want to see. I hope the Minister will respond positively to this amendment.

[Baroness Penn (Con)]

My Lords, I thank the noble Lord, Lord Hunt, for bringing forward a debate on this issue. I reassure him and other noble Lords that the Government absolutely agree that supporting people to maintain their health and well-being and to manage self-treatable conditions is a vital part of delivering a comprehensive health service. Indeed, much of what the amendment seeks to achieve is already government policy. However, I do not agree that requiring the Secretary of State to prepare a single national strategy would add value. Instead, we are threading self-care through a wide range of work, reflecting the range of areas that it impacts upon.

A good deal of work is already under way. The community pharmacy contractual framework for 2019 to 2024 five-year deal sets out how community pharmacy will support the NHS long-term plan. Community pharmacies, which provide easy access to the NHS, are already required to support patient self-care, signpost to other parts of the NHS and local services as necessary, and help people to live healthily.

I am especially aware of the interest the Proprietary Association of Great Britain has shown in this area. The Department of Health and Social Care officials have met with it to discuss its blueprint for a self-care strategy in England and will continue to engage with it about further supporting self-care throughout our healthcare system.

We do not think placing an additional duty on the Secretary of State would be the right way to support this work, as it would take it out of the NHS long-term plan, where it belongs as part of a holistic approach to the provision of a health service. It could risk making it more disjointed rather than integrated in its approach, but noble Lords made a really important point about demand on our health service and the role that self-care has in this. Prevention was a key theme of a speech by my right honourable friend the Secretary of State last week and, clearly, elements of self-care and prevention go hand in hand with each other, particularly in the use of new technology.

Noble Lords also made an important point about how we can use self-care, particularly at community pharmacies, to reduce pressure on GPs and A&E departments. All community pharmacies are required, as I said, to provide support for self-care. To ensure that people get directed to the right support for their health needs, we have introduced referral systems from NHS 111 and GPs to pharmacies for advice and treatment for minor illnesses. We are also exploring expanding referrals from other settings, including urgent treatment centres and A&E to community pharmacies.

I hope that gives noble Lords some reassurance that we place an importance on self-care, as part of our health service. That will only increase in future and work is under way in multiple areas of the health service to do that. I hope, therefore, that the noble Lord is able to withdraw his amendment.

[Lord Hunt of Kings Heath (Lab)]

I am grateful to the noble Lord, Lord Clement-Jones, and my noble friend Lady Wheeler for their support, and to the Minister. I am glad to hear her recognition of the importance of community pharmacy, and about the meetings between officials and the PAGB. That is very welcome.

I agree that the interrelationship between self-care and prevention is important—as is, may I say, personal responsibility. I also agree that the pressure we face in the system is such that this is important for the future. The Government may not want a strategy but, at some point, setting out their aim in this area and giving the right signals to us as individuals, but also to the system, would be very helpful. I beg leave to withdraw my amendment.

Health and Care Bill

Baroness Penn Excerpts

Lords Hansard - Part 2 & Report stage
Monday 7th March 2022 Lords Chamber

[Baroness Merron (Lab)]

My Lords, we have had a considerable debate on these issues, in Committee and this evening in your Lordships’ House. From these Benches, we absolutely support the provisions to tackle obesity. The reasons have been gone over many times, but I make one point in respect of children—that children with obesity are five times more likely to become adults with obesity, and increase their risk of developing a range of conditions, including type-2 diabetes, cancer and heart and liver disease. It is incumbent on us to take the steps that are necessary.

Given the lateness of the hour—and I know that noble Lords wish to get to the question whether there is to be a Division—I shall focus my comments on the amendments relating to advertising, Amendment 151A, in the name of the noble Lord, Lord Black, and the subsequent amendments, to which I have put my own name. There has been a great clarity of argument as to why those amendments deserve favour, but the one that sticks out for me is about ensuring the effectiveness of the legislation that we are speaking about.

We already know that legislation can have a huge impact. For example, the soft drinks industry levy has led to manufacturers reducing 44 million kilograms of sugar each year from drinks in the UK. We also know of the support for the measure of the watershed for advertising of high-fat sugar and salt products—in other words, to protect children from those influences. We know that the measure is supported by organisations such as the British Heart Foundation, the Food Foundation and many other experts as being able to make the difference, because children are influenced by advertising. We should really be ensuring that children see adverts for healthier food and drinks.

Should the will of the House be tested on these amendments, these Benches will certainly be in support, because we feel that the Government should make sure that the proposed pre-9 pm ban on advertising unhealthier foods on TV, with a total ban online, has to be implemented effectively and appropriately across all media and platforms. If it is not and remains as it stands, it will not do the job that it is intended to do, and we will miss an opportunity, which we hope the Minister will reflect on, as the case has been made so clearly and directly.

[Baroness Penn (Con)]

My Lords, I thank noble Lords for this debate. I will turn first to the amendments in the name of my noble friend Lord Bethell. As noble Lords are aware, the Government introduced an amendment in Committee to enable adjustments to the date of commencement of the HFSS advertising restrictions, should emerging issues require it to be moved.

We will continue to work with regulators and businesses to ensure that guidance is produced promptly to support timely implementation; our intention remains to implement restrictions from 1 January 2023. We think that date balances ambition with the importance of sufficient time for business to prepare. However, limiting this flexibility to a period of only three months, as proposed by my noble friend’s amendment, would be counterproductive, as that timeframe may not allow us to respond adequately to any unforeseen challenges or ensure smooth delivery of this policy.

Turning to the amendments tabled by my noble friend Lord Moylan, I seek to reassure him that our current approach provides an overall assessment of the nutritional content of products, as it accounts for nutrients of concern as well as beneficial nutrients. As such, we consider it to be an effective mechanism for permitting healthier products to be advertised, while still restricting those which are less healthy overall. The detail of the products in scope will be underpinned by secondary legislation, which can provide the necessary detail and be adapted in response to future changes to products on the market. The Government will consult soon on this and other definitions included in the draft regulations, such as the small and medium enterprise exemption.

I turn now to the amendments on platform liability. The Government believe that the online advertising programme remains the best way to address such issues on an industry-wide basis, rather than in a piecemeal fashion. I am pleased to be able to confirm that the DCMS consultation, which should launch in the next fortnight, will examine the harms associated with paid-for advertising online and consider the measures that could apply to platforms and others in the supply chain in order to increase accountability and transparency.

It is our intention to legislate on those conclusions in this Parliament, as we share the view that it is the right time to put in place holistic measures to tackle platform liability. However, it is also right to bring forward powers in this Bill now, so that we can begin to tackle obesity via restrictions to TV, on-demand programme services and online, in line with current enforcement frameworks for advertising that are familiar to industry. Platforms are not able to pre-vet adverts in the same way that broadcasters can. We recognise that there is a need to address that issue, but to do so in the round.

Amending this Bill in relation to online platforms without wider consultation and at a late stage risks unintended consequences. Those could include undermining the clear responsibility of advertisers to adhere to the restrictions that we are debating; interfering with the competitive dynamics that apply across the online advertising supply chain; not addressing accountability and transparency issues that apply elsewhere in that ecosystem; the danger of the restrictions applying to a wide range of internet service providers beyond those intended, including intermediaries and publishers; and not providing regulators with the right tools, funding or structures to regulate effectively. Were this amendment to pass, the Government would need to consider very carefully whether implementation from 1 January 2023 remained possible. The risks posed by creating a more complicated regulatory framework are likely to result in a delay.

[Lord Grade of Yarmouth (Con)]

My Lords, I am grateful to my noble friend the Minister for giving way. Do the Government understand the difference between mass brand advertising on free-to-air linear television and the direct addressability to individuals online, where they have all the data—the address, postcode, email address and phone number—of the kids they are advertising to? The Government seem not to understand the pernicious nature of advertising online.

[Baroness Penn (Con)]

My Lords, in our 2020 consultation on advertising, we outlined our concerns about online targeting of adverts, so we did look at the approach suggested by my noble friend. There is no evidence to suggest that targeting online does not account for the use of shared devices and profiles between parents and children, the communal viewing of content or false reporting of children’s ages. This—combined with concerns around the accuracy of internet-based targeting and other behavioural data as a way of guessing a user’s age and a lack of transparency in reporting online—shows why the Government believe that we need to introduce these advertising restrictions online in the way that we have.

Health and Care Bill

Baroness Penn Excerpts

Committee stage
Friday 4th February 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, this has been an important and engaging debate. There has been consensus that childhood obesity is one of the biggest health problems this nation faces—and maybe not just a health problem. We have also talked about the impact of inequality and broader life chances. The latest national child measurement programme data, from 2020-21, showed that some 40% of children leaving primary schools in England were overweight or living with obesity.

That is why, as part of our ambition to halve childhood obesity by 2030, it is imperative that we reduce children’s exposure to less healthy food and drink product advertising on TV and online. To be clear, the Government know that this is not a silver bullet, and this action alone will not solve the problem; it is part of a multifaceted plan. I can reassure my noble friend Lord Grade and the noble Baroness, Lady Walmsley, that this includes working with manufacturers on reformulation and to produce healthier food. Indeed, we are clear that products that are reformulated to pass the MPM will be able to be advertised, and we hope this provides a motivation for brands to do so. Obesity is a complex problem that builds over time through frequent excessive calorie consumption. Through this one action, as part of a wider programme, we estimate that we can remove up to 7.2 billion calories from children’s diets per year in the UK.

Turning to specific amendments and looking first at what should be covered by these priorities, I will speak to Amendments 253B, 254A, 254B, 247A, 249ZA, 249ZB, 250B, 252ZA, 252ZB, 248, 248A, and 251. We believe that the current approach to defining food that is less healthy provides sufficient legal certainty and is consistent with other healthy weight restrictions and policies. For example, it is used in a similar way in the promotions and placement restrictions for less healthy food and drink, which were made law last December.

It is important to provide detail in the Bill on the two-step criteria to determine what is less healthy, in order to ensure that the primary legislation is sufficiently clear. The nutrient profiling model has been used by Ofcom since 2007 to determine what can be advertised around child-specific programming on TV, although outside the statutory framework. The technical guidance of January 2011, which provides the steps to calculate the nutrient profiling model score, is an existing document that has been specifically developed and used to support industry since it was published. Its substance is not changeable at the discretion of the Secretary of State and, as an additional safeguard, the Government have already amended Schedule 17 to include a statutory duty to consult in the event that a change is proposed to the meaning of “the relevant guidance”.

I can assure noble Lords that the current approach would allow healthier products, which may contain fruit, nuts and seeds or be a source of protein, to not be caught by restrictions, while still restricting those which are less healthy overall. However, that will also need to be underpinned by secondary legislation, which the Government will be consulting on shortly, and the points your Lordships have raised will be considered as part of this.

The proposed amendment to permit the advertising of confectionery of less than 200 calories could mean that adverts for chocolate confectionery products could still be permitted on TV before the watershed and online, given the likely difficulty in determining portion sizes in such adverts. This would undermine the policy and send out the wrong message to consumers and producers.

In response to Amendment 244, we do not believe it is necessary to consult on whether alcohol should be included as a “less healthy” product, as these provisions are aimed at reducing the exposure of children to less healthy food and drink advertising. Unlike alcohol, less healthy food and drink products are not age-restricted at the point of purchase. In addition, as noble Lords have noted, there are other measures in place that address the advertising of alcohol.

Turning to Amendments 247, 250A and 253A, I assure noble Lords that brand advertising is out of scope of the restrictions, as these clauses focus on identifiable products. Including an exemption in the Bill for something that is already out of scope would have no legal effect and therefore may cause undue confusion.

I turn to Amendments 248B, 251A and 253C on who will be covered by these proposals. We intend to define food and drink SMEs as businesses with 249 employees or fewer, as outlined in our consultation response. By doing this, the Government want to ensure consistency with other similar definitions, such as for out-of-home calorie labelling. We will consult on the secondary legislation defining food and drink SMEs shortly, but this approach will allow Ministers to act promptly to change the definition of food or drink SMEs in future, should it be necessary.

I turn to platform liability and other questions regarding the watershed hours in Amendments 250ZA, 253ZA, 254A, 255A, 255B, 257B and 253AA. Platform liability is incredibly important. During the 2020 consultation, we considered whether other actors in the online advertising supply chain should have responsibility for breaches alongside advertisers, but concluded that this was not the right place for this broader issue, given the far-reaching impacts for the industry. However, I reassure my noble friend Lady Stowell, the noble Lord, Lord Clement-Jones, and many others that the Government intend to consider platform liability as part of the wider online advertising programme.

On the question of when these restrictions should apply, Ofcom’s research—

[Baroness Stowell of Beeston (Con)]

I am so sorry to interrupt my noble friend, but can she please give us a timescale for that?

[Baroness Penn (Con)]

I believe it is being conducted this year, but I will check that and come back to my noble friend and all other Members of the Committee, because I know there is significant concern on that point.

On the timing of the restrictions on television, Ofcom research suggests that children’s viewing peaks in the hours after school, with the largest number of child viewers concentrated between 6 pm and 9 pm. In this period, half of children’s viewing takes place during adult commercial programming. We do not therefore believe that introducing advertising restrictions only on the weekend is sufficient to meet our policy objectives.

We are committed to ensuring that businesses are supported now and when the regime comes into force. We will, of course, consult on the secondary legislation and guidance, which should give stakeholders more clarity. However, in response to Amendments 245, 255, 256, 257 and 317, we believe that the overall policy direction has been set out effectively and we do not think that there is a need to add the kind of gap between publication of final guidance and implementation, as proposed by my noble friend’s amendment.

In response to Amendments 249A, 252A and 257A, I can assure your Lordships that we will conduct a post-implementation review five years after implementation. This is intended to be based on the variables set out in the impact assessment, published in June 2021. However, the Government believe that further tying down of the criteria at this stage would be counterproductive. We will also use this opportunity to look at any displacement of advertising to other media not covered by the restrictions, such as outdoor advertising.

However, in response to Amendment 244A, there is insufficient evidence at this stage of the influence of further national advertising restrictions in other media on calorie consumption in children, which is why these restrictions focus on TV and online only. We would also advise against adding a sunset clause, as it would pre-empt this evaluative work and could undermine compliance. We have heard quite a bit from noble Lords about the need for certainty on the Government’s approach in this area. I say to my noble friend that a sunset clause on these regulations would undermine that case.

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[Lord Grade of Yarmouth (Con)]

Before my noble friend sits down, can she give the House some sense of what the Government would regard as success as a result of the advertising ban? Is there some target of reduction that they expect to see at the end of five years as a result of this ridiculous ban?

[Baroness Penn (Con)]

I believe that I said that the criteria for measuring the success of this policy have been set out in the impact assessment. I will happily send that to my noble friend. I do not think that it is a finalised list. We have discussed in this Committee the difficulty of assessing success, so we would not want to preclude new research or information that would help us to assess our approach better in future.

My noble friend was right in anticipating that I was about to conclude. This has been a substantial group of amendments—

[Lord Lansley (Con)]

Before my noble friend sits down, can I ask her about the nutrient profiling technical guidance? What is the timetable and process for its review?

[Baroness Penn (Con)]

My noble friend was of course eagle-eared—I am mixing a metaphor—in that I did not address his point on that. I can tell him that, in 2016, the Government commissioned Public Health England to review the UK NPM algorithm that has been in place since 2004, to ensure that it aligns with dietary recommendations from the Scientific Advisory Committee on Nutrition, particularly for free sugars and fibre. I am afraid to say that my next line is that the outcome of that review will be published in due course.

[Lord Clement-Jones (LD)]

I want to follow up on that question. It was in 2018 that the consultation took place; is the Minister aware of that? We are now four years down the track and nothing has come out.

[Baroness Penn (Con)]

The date that I have for the commissioning of the work is 2016, which means that we are even further down the road on that piece of work. I am well aware of the time that has passed since then. I will undertake to see if I can provide any update beyond “in due course”, but I do not want to raise noble Lords’ hopes too far on that.

I hope that I have been able to provide noble Lords across the Chamber with assurances as to our plans and, therefore, that noble Lords will feel able not to press their amendments.

[Baroness Finlay of Llandaff (CB)]

My Lords, we are three hours and 49 amendments on and I am sure that everyone in the House will join me in saying that we have enjoyed hearing from the noble Baroness the Minister now that she is back in Committee with us.

It is perhaps a crumb of comfort to those who have been worried about advertising and the outcomes that Norway’s ban since 2013 has shown that other products moved into the space and there was not a total loss of income. Quebec has had the least rise in childhood obesity in Canada since its ban. I will not comment any more on that other than to say that we have all recognised that obesity is a serious problem that needs to be addressed. The Wild West digital space of the platforms needs to be addressed quite urgently and will be more difficult, but I hope that this will not deter the Government from their action to tackle obesity.

For my amendment, I just remind the House that alcohol adverts are tempting young people into early consumption. It is a highly obesogenic and highly addictive substance, which is why my amendment was there. I am disappointed that the Government are not even considering incorporating it in the list of substances, but I beg leave to withdraw my amendment.

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Moved by

[Baroness Penn]

246: Schedule 17, page 234, line 23, at end insert—
“(1A) OFCOM must ensure that the prohibition provided for by the first standards set by virtue of subsection (1) takes effect from the beginning of 1 January 2023.”Member’s explanatory statement
This amendment ensures that the watershed on television advertising of unhealthy food and drink will not apply until 1 January 2023.

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Moved by

[Baroness Penn]

249: Schedule 17, page 235, line 18, at end insert—
“(4A) The Secretary of State may, before the date specified in subsection (1A), amend that subsection so as to substitute a later date for the date that is for the time being specified there.”Member’s explanatory statement
This amendment allows the Secretary of State to defer beyond 1 January 2023 the date when the watershed on television advertising of unhealthy food and drink begins to apply.

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Moved by

[Baroness Penn]

250: Schedule 17, page 235, line 30, leave out from beginning to “include” in line 31 and insert “From the beginning of 1 January 2023, on-demand programme services must not, between 5.30 am and 9.00 pm,”
Member’s explanatory statement
This amendment ensures that the watershed on advertising of unhealthy food and drink in on-demand programme services will not apply until 1 January 2023.

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Moved by

[Baroness Penn]

252: Schedule 17, page 236, line 16, at end insert—
“(5A) The Secretary of State may, before the date specified in subsection (1), amend that subsection so as to substitute a later date for the date that is for the time being specified there.” Member’s explanatory statement
This amendment allows the Secretary of State to defer beyond 1 January 2023 the date when the watershed on advertising of unhealthy food and drink in on-demand programme services begins to apply.

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Moved by

[Baroness Penn]

253: Schedule 17, page 236, line 32, at beginning insert “From the beginning of 1 January 2023,”
Member’s explanatory statement
This amendment ensures that the prohibition on online advertising of unhealthy food and drink will not apply until 1 January 2023.

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Moved by

[Baroness Penn]

254: Schedule 17, page 237, line 38, at end insert—
“(6A) The Secretary of State may, before the date specified in subsection (1)—(a) amend that subsection so as to substitute a later date for the date that is for the time being specified there, and(b) make corresponding amendments to the references to that date in subsections (10) and (11).”Member’s explanatory statement
This amendment allows the Secretary of State to defer beyond 1 January 2023 the date when the prohibition on online advertising of unhealthy food and drink begins to apply.

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[Baroness Penn (Con)]

My Lords, I am grateful to all the noble Baronesses who have spoken in this group, and in particular to my noble friend Lady Cumberlege for all the work that she has done on patient safety. I have noted their points very carefully and look forward to the further discussion of transparency and scrutiny of healthcare professionals in the debate on the next group where, on the point that the noble Baroness, Lady Thornton, made about payments from pharma and so on, it is my understanding that it will be on industry to declare those nationally.

Financial Services Bill

Baroness Penn Excerpts

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[Lord Tunnicliffe (Lab) [V]]

My Lords, we welcome the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes of Richmond, on digital ID and other, broader, fintech issues. They provide the Government with an opportunity to elaborate on the responses given in Committee. I hope that those who tabled the amendments will forgive me for not speaking to each in turn, but to do so would be to repeat many of the points already made.

While we would not necessarily endorse some of the timescales envisaged in the amendments, the questions asked by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Holmes, are sensible. In commissioning a review of fintech, the Government have demonstrated a level of interest in it, but the key question is how that is developed into concrete initiatives that grow the financial services sector while also improving the customer experience. The use of distributed digital identification could bring about a fundamental shift in how individuals and financial service businesses operate and interact on a day-to-day basis.

Properly considered implementation of digital ID could empower consumers by giving them greater choice in the services that they can access and better control over their personal data. The latter point is crucial. Any steps to further digitise the sector must come with security and privacy safeguards built in. It may not be possible or desirable to roll out digital ID overnight, but it would be interesting to hear more on the steps being taken by the Treasury and others to assess the opportunities and risks that exist. I hope that the Minister can also speak to potential timescales, even if they are not as ambitious as those spelled out in the amendments.

Amendment 37E in the name of the noble Lord, Lord Holmes of Richmond, appears to be a probing amendment, but I hope the Government will take seriously his suggestion of studying the links between digital and financial exclusion. In an earlier debate I referred to the need to tackle some of the bigger, more complex issues that contribute to financial exclusion. Without concerted effort now, one can envisage a scenario in which certain sections of the population already susceptible to financial exclusion will be unable to avail themselves of the products and services facilitated by new technologies.

We are at an interesting point in the fintech debate following publication of the Kalifa review. Items such as digital ID are mentioned in that document, albeit in the context of the need to establish international codes and standards. The UK has long been a leader in this sector. If we are to continue being so, both government and business must seek to participate fully in relevant cross-border discussions and initiatives.

I note from my latest perusal of the House of Lords business that the ever-tenacious noble Lord, Lord Holmes, has secured an Oral Question on 27 April regarding the Government’s response to the Kalifa review’s recommendations. I hope the Minister can provide sufficient reassurance that the Treasury recognises and wishes to harness the potential of fintech, but I am sure that any gaps in the response today will be revisited in just under two weeks.

[Baroness Penn (Con)]

My Lords, this group of amendments returns to the use of technology and data in financial services, a topic we have discussed at length at earlier stages. It is an important debate, and I welcome the efforts of noble Lords to bring this to our attention again.

As the noble Baroness, Lady Kramer, noted, as part of UK FinTech Week 2021 my right honourable friend the Chancellor, just this morning, delivered a speech setting out the Government’s commitment to fintech as a crucial component of the future of UK financial services. The Chancellor made several announcements, including the launch of a new task force between the Treasury and the Bank of England to co-ordinate exploratory work on a potential central bank digital currency; a new financial market infrastructure sandbox; confirmation that the FCA will take forward the idea of a regulatory scale box; a package of measures to support fintech firm growth; and a commitment to work with the fintech community to realise the idea of a new, industry-led centre for finance, innovation and technology.

The Chancellor also reiterated his thanks to Ron Kalifa for his landmark fintech review and confirmed that the Government will shortly provide a detailed response to Parliament via a Written Statement. I am not sure I can say to the noble Lord, Lord Tunnicliffe, whether that will be before the Oral Question on 27 April.

I turn to the amendments before us today. Amendments 28, 29 and 30 all relate to the establishment of a system of digital identification and call on the Government to publish plans for achieving this. Digital identity is a vital building block for the economy of the future. The Government recognise that digital identities have the potential to make it quicker, easier and more secure for people and businesses to get things done, to simplify people’s lives and to boost business. We want to offer people the choice to provide their identity digitally where and when it suits them, securely, easily and with confidence.

I was pleased to be able to meet my noble friends Lady Neville-Rolfe and Lord Holmes last week. In that meeting, we discussed the ambitious programme of work that the Government are taking forward on digital identities that work across the economy, some of which I will summarise here.

The Government published their response to the digital identity call for evidence in September 2020 and committed to creating a framework of standards, governance and legislation to enable digital identities to be used in the greatest number of circumstances. I assure my noble friend Lady McIntosh of Pickering that this work is being co-ordinated by the Department for Digital, Culture, Media and Sport across all departments, including the Treasury, so that the policy on digital ID captures the widest number of applications and uses for it. An important part of this work was the recent publication of the draft UK Digital Identity and Attributes Trust Framework. This framework sets out a vision of the rules governing the future use of trusted digital identity products.

Financial Services Bill

Baroness Penn Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, during our debates on this Bill, we have referred several times to the success of principles-based regulation in this country. We have contrasted it with the more prescriptive regulatory structures introduced within the European Union. The idea of a duty of care is a prime example of principles-based regulation because it presents a principle from which particular actions can be derived. It is now very important, given the financial stresses created by the pandemic to which several noble Lords have referred in their contributions to this debate. This is but one example of the unexpected pressures in the financial system that arise on a regular basis, not least because of the fintech innovations referred to earlier which require a flexible, principles-based approach. The strength of this approach is that is encompasses financial innovation—the changes to which many noble Lords have referred.

I understand that later in the consideration of this Bill the Government will bring forward measures to regulate the “buy now, pay later” market. This would already have been encompassed in a duty of care. It would not have slipped through the gap. If there had been a general duty of care in place, consumers would have received some degree of protection already.

One of the striking things about the issue of a duty of care and the FCA rulebook is that a number of measures that amount to a duty of care exist in the rulebook already. There are “know your customer”, “treating customers fairly” and the consumer credit rules, which require assessment of creditworthiness. What is striking is that this specific list has gaps in it.

Many noble Lords referred to the examples of malfeasance; it is this structure that creates the environment for and encourages malfeasance. It encourages testing of boundaries and of gaps. If there were instead a broad principle it would significantly discourage that persistent, competitive drive to test the gaps that exist in the current list of consumer protection measures in the FCA rulebook.

It is not simply that the lack of a duty of care creates the inability to deal with malfeasance; it actually creates it by the structure it presents for a very competitive market. We all know that this particular structure—having a specific list of something in a legal document—always raises the question of what has been left out. That is exactly the case in the FCA rulebook. It lacks the firm foundation of principle.

In Grand Committee, the noble Baroness, Lady Penn, was quite right to argue in summing up that

“the FCA is already taking steps to ensure that financial services firms exercise due care and regard when offering products, services and advice to consumers.”

She was right that there is a list, but she was quite wrong to then argue that a statutory duty of care

“does not add to the FCA’s existing powers in this area.”—[Official Report, 22/2/21; col. GC 116.]

Of course it does. It must do, in one of the most dynamic industries in the United Kingdom, associated with innovation, change and competition. It is the very nature of successful principles-based regulation that actions should derive from general principles.

The FCA lacks this statutory declaration of general principle. This is why Macmillan Cancer Support’s campaign Banking on Change was necessary, and why it is so important to place a general principle of duty of care on the statute book. My noble friend Lord Stevenson has made a very specific offer to the Minister with respect to Third Reading. I strongly urge her to accept it.

[Baroness Penn (Con)]

My Lords, I am grateful to the noble Lords who have put forward this amendment, and I appreciate the strength of feeling that exists around this important issue. I also pay tribute to the arguments made in previous stages of this Bill, including in Grand Committee. Noble Lords have spoken passionately about the need to tackle issues of consumer harm that exist in the financial services industry, and I agree that it is essential that this issue is addressed effectively.

The Government are committed to ensuring that financial services consumers are protected and that steps are taken quickly to address issues when they are identified. The noble Lord, Lord Eatwell, argued for a principles-based approach to financial services regulation. That is what is contained in the FCA’s principles for business, which govern financial services firms’ treatment of their customers, as well as the specific requirements in the FCA’s handbook.

I hope noble Lords will not mind if I set out the principles of business, because that will help us in considering the amendment. The principles include:

“A firm must conduct its business with integrity … A firm must conduct its business with due skill, care, and diligence … A firm must pay due regard to the interests of its customers and treat them fairly … A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair, and not misleading … A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client … A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment.”


These fundamental principles aim to protect consumers who often have less knowledge and expertise than the firms providing them services.

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, we should all be grateful to the noble Baroness, Lady Noakes, for her persistence in this vital area. She is quite right that the clock is ticking: with nine months to go, we really need to do something about this issue; to do otherwise would be irresponsible.

Amendment 4 is valuable in defining continuity of contract, but there remains a problem that it does not and cannot solve: if the foundation of a contract is changed, its value can change. That leads on to Amendment 5. Here, I regret to say that I differ with the noble Baroness, Lady Noakes, and with the noble Baroness, Lady Bowles. It is surely the responsibility of Parliament in this case primarily to protect the retail investor, as it is the retail investor who is not the professional, who typically does not have the same information as the professional and who is likely to be more financially vulnerable, not least because retail investment is dominated by pension savings. I therefore conclude that the provision of a safe harbour is inappropriate in this case and would be looking instead for some mechanism of reconciliation rather than prevention of claim.

However, I am delighted to express my support for Amendment 6—which is not surprising as my name is on it. Here the noble Baroness, Lady Noakes, has actually saved the Government from considerable embarrassment by presenting an amendment which succinctly encapsulates, without being prescriptive, the issues the FCA must address in facing the difficulties created by the replacement of Libor: continuity of contract and reconciling the damages. Unlike Amendments 4 and 5, Amendment 6 incorporates those. I express strong support for Amendment 6 and recommend it wholeheartedly to the Government. In terms of the buffet approach, it is the healthy option.

[Baroness Penn (Con)]

Noble Lords will remember from previous stages that the Bill provides the FCA with the powers to manage an orderly wind-down of a critical benchmark such as the Libor benchmark.

In 2015, the Financial Stability Board recommended a transition away from certain interest rate benchmarks, including Libor, to alternative rates based on active and liquid underlying markets. In 2017, the FCA secured agreement from the panel banks that contribute to Libor that they would continue submissions until the end of 2021, providing time for firms to move away from use of the Libor wherever possible.

However, it has been clear for some time that there will be certain “tough legacy” contracts that will be unable to transition away from Libor in time. It is for the benefit of these contracts that the Bill grants the FCA the power under Article 23D of the Benchmarks Regulation to direct a change in how a benchmark is calculated, so that the benchmark can continue for a limited time after banks stop providing their contributions. The Bill therefore represents a critical step in providing for a smooth transition away from Libor, mitigating the risk of the financial instability and market disruption that could be caused by a disorderly transition or end to Libor. It has been widely welcomed by the financial services industry and internationally.

The proposed amendments seek to supplement the Bill’s provisions, reducing further the scope for uncertainty, contractual disputes or litigation between parties over the reference to a benchmark within a contract where the FCA has directed a change in the methodology on which the benchmark is calculated. Amendment 4 seeks to provide for contract continuity where the FCA uses its Article 23D power to impose a change in the methodology of a critical benchmark, providing that parties must interpret references to that benchmark in their contracts as references to the revised benchmark. Amendment 5 seeks to reduce the scope for litigation where the FCA has exercised its Article 23D power on a critical benchmark, providing a safe harbour for the use of that benchmark.

As stated in Committee and in the other place, the Government are committed to ensuring that an appropriate framework is in place for the orderly wind-down of Libor. We take this matter very seriously. As my noble friend Lady Noakes noted, the Government’s consultation on this issue has only recently closed, on 15 March. The consultation responses have underscored that there are complex and wide-ranging policy and legal considerations that must be fully understood before taking any further action on this issue. That range of considerations and views has been illustrated by the range of views expressed in this evening’s debate, but my noble friend Lady Noakes is correct to say that the industry has indicated, including through its responses to the consultation, that it is supportive of the approach set by the Government in the consultation.

Financial Services Bill

Baroness Penn Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling this group of amendments, which deal with various aspects of fintech. His contributions on this Bill have been thoughtful, and nobody should be surprised by him pushing this agenda today, given his role as co-chair of the relevant APPG. As other noble Lords have mentioned, this debate is a topical one, following the publication of the Kalifa review on fintech last month. We welcome that review and hope that the Government will support our world-leading fintech sector to continue innovating and do so in a way that spreads opportunity to all parts of the country.

When we refer to things being life changing, we often do so in a hyperbolic manner. However, it is no exaggeration to say that technological innovation in the financial services sector has fundamentally altered our understanding of and everyday experiences with money. The pace and scope of change has been incredible; the journey from cheques to mobile phone payments, for example, has been a swift one. Many young people conduct virtually all their banking activity online through the apps of high-street banks or using entirely digital services such as Monzo. Elsewhere, terms such as crowdfunding and crypto currency have become common parlance, with the emergence and increasing use of new technologies, including artificial intelligence and blockchain. The possibilities are almost beyond comprehension.

Taken collectively, the noble Lord’s amendments point to the crux of the issue: how can we maximise the opportunities that undoubtedly exist in the sector while guarding against the risk inherent in the use of new technologies and working practices? Artificial intelligence is an interesting case in point. AI tools, which are regularly deployed in a number of sectors, have the potential to assist with a variety of issues which we have covered in previous debates, such as identifying fraudulent or otherwise suspicious transactions. However, Amendments 112 and 118 refer to some of the ethical considerations that arise from automated decision-making.

In a recent piece for the House magazine, and again in his opening remarks, the noble Lord issued a challenge to the Government that they should take steps now to foster the potential for our fintech sector or risk losing talent to our competitors, falling behind in the global tech arms race and, ultimately, having to play catch-up. I am not necessarily convinced of the case for legislative requirements for reports and reviews on these issues. The noble Lord is right to seek more information on the Government’s intentions. If London is to be the world-leading financial centre that the Chancellor and many others would like it to be, how do the Government plan to strike the balance that I spoke of previously? In striking that balance, how do Ministers plan to ensure that consumers and citizens are placed at the heart of a digital finance package? With technology touching all our lives, it is only right that we should all reap the benefits of change. However, as I mentioned previously, we must also take steps to identify and mitigate the risks.

There is probably far more that could be said than time allows. I look forward to seeing how much ground the Minister is able to cover.

[Baroness Penn (Con)]

My Lords, I am grateful for this opportunity to discuss the important issue of the use of technology in financial services and how technological developments will continue to impact the sector. The UK has been independently ranked as one of the best places in the world to start and grow a financial technology, or fintech, firm. I reassure my noble friend Lady McIntosh of Pickering that, as the Chancellor set out in his November speech on the future of financial services, we are not complacent. We want to build on this strength and use technology to deliver better outcomes for consumers and businesses and make the most of the job opportunities that this sector presents.

Many of the questions raised by the adoption of cutting-edge technology apply across the whole economy, not just to financial services, so although I am sympathetic to the purpose behind a number of the amendments—ensuring that the UK embraces the opportunities that new technology can bring—I am not convinced that they are the best route forward at this time.

Financial Services Bill

Baroness Penn Excerpts

Committee stage
Monday 8th March 2021 Grand Committee

[Lord Eatwell (Lab)]

My Lords, this request for a review of short selling is essentially a request to focus on just one of the aspects of the financial markets today that may contribute to enhanced instability in times of stress. It is not just short selling that involves the sale of borrowed assets—this is what the repo market, for example, is all about. The repo market was central to the dangerously short-term funding of the banking sector in the run-up to the financial crisis of 2007-9.

Of course, short selling is prominent because it is a factor in falling markets, when money is being lost, as opposed to similar practices in rising market bubbles, when money is being made. Of course, the short sellers sometimes get their comeuppance, as has been mentioned by several noble Lords in reference to the case of GameStop. The fundamental question is not whether short selling is a process that can be abused—of course it can. What is important is whether the very existence of the practice contributes to market instability and risk or, as has also been argued, to price discovery and greater liquidity.

Those questions may be asked of many practices in our financial markets today, and, at a time when the UK is rethinking its economic and financial future after leaving the European Union, perhaps the time is right for such a wider review of permitted practices. This could begin with consideration of the impact of trading in borrowed assets—as well as, of course, naked transactions—in forward markets.

Since the liberalising years of the 1970s and 1980s, a wide range of these market practices have developed, with potentially serious destabilising consequences—indeed, we have seen these. As such, does the Minister agree with the many noble Lords who have argued that it is time to stand back and think through whether matters have gone too far, are just right or have not gone far enough? Perhaps such a review is too specific for the regulatory framework review that is going on at the moment because, after all, that is about the framework. However, it is necessary to consider, from time to time, practices that will inevitably have downsides but may also have upsides. That sort of consideration should not be delayed at a time when market regulation is changing significantly, with the exit from the European Union.

[Baroness Penn (Con)]

My Lords, it is important to stress, as a number of noble Lords have done, that short selling is a legitimate investment technique that can contribute to orderly and open markets supporting many consumers. Taking short and long positions can ensure that investors are able to manage risk and volatility in their portfolio, particularly during uncertain times; for example, if a firm has purchased a large number of shares, that firm might want to short some of those shares if they have a volatile price.

As my noble friend Lady McIntosh of Pickering ably set out, the UK’s regulatory regime for short selling is predominantly set out in the short selling regulations, which were introduced in 2012 to regulate short selling practices while safeguarding companies and the financial system. Among other things, it requires persons to notify the FCA of the size of their short positions in shares traded on a UK trading venue. It also gives the FCA various powers to intervene in response to exceptional circumstances that pose a serious threat to financial stability or market confidence in the UK. These include requiring the notification or disclosure of short positions, as well as restricting short selling to periods of up to three months. Furthermore, the FCA can temporarily prohibit or restrict short selling when the price has fallen significantly during a single trading day relative to the closing price of that instrument on the previous trading day. This regime is working as intended, providing the necessary safeguards to allow the operation of a fair and effective market. The Government continue to work closely with the regulators and market participants to monitor the effectiveness of the entire regulatory regime to ensure that legislation continues to be fit for purpose and delivers on its objectives, in particular to support economic growth and maintain financial stability.

As my noble friend Lady McIntosh of Pickering noted on the example of GameStop, the UK short selling regime was not breached because it does not apply to shares admitted to trading on US trading venues. Furthermore, the regime that I have just set out that applies to short selling would mean that in such a scenario in the UK the FCA would have been able to identify short positions building up and would have been able effectively to engage with the firms holding the short positions in that case.

I am not sure that I recognise the characterisation of the Bank for International Settlements’ report set out by my noble friend Lady McIntosh of Pickering, but I will happily write to her on that matter.

A number of noble Lords have spoken, from different perspectives, in favour of a review of short selling. In response to a number of direct questions about what jurisdictions such a review would look at or whether it would look at relaxing or shoring up such regulations, at this point the Government do not see this issue as the most pressing area of financial services regulation to look at. We see no need to conduct a review of this legislation at this time, so I ask my noble friend Lady McIntosh to withdraw her amendment.

[Baroness McIntosh of Pickering (Con) [V]]

I am grateful to the Minister and to all those who have contributed. I recognise the role that the noble Baroness, Lady Bowles, played in the adoption of the current EU regulation. I am grateful to my noble friend and others who set out the arguments on one side or the other. I have a great deal of sympathy with my noble friend Lord Holmes of Richmond and his earlier amendment calling for a review of all financial regulations and regulators’ rules, and I note that my noble friend Lady Penn does not see the need for this at present.

This is something that I will personally continue to monitor. I have no doubt that my noble friend Lady Noakes, who speaks with great authority and expertise on these issues, and my noble friends Lord Sharpe and Lord Trenchard would prefer that many of the regulations would just go away, but I am rather pleased that they are not going away for the moment. My concerns have been addressed to a great extent. I will continue to support my noble friend Lord Holmes’s call for a further review of all these practices. I am grateful to have had the opportunity to debate these issues and I beg leave to withdraw the amendment at this stage.

--- Later in debate ---

Amendments 91 to 98 not moved.

[Baroness Penn (Con)]

My Lords, this may be a convenient moment for the Committee to adjourn.

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

That concludes the work of the Committee this afternoon. As always, I remind Members to sanitise desks and chairs.

Financial Services Bill

Baroness Penn Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, despite various initiatives to encourage the emergence of challenger banks and local and regional institutions, barriers to entry remain high and the UK does not have a very positive story to tell. If they were provided with the right regulatory framework, an expansion in the number of local and regional banks could play an important role in addressing local inequalities, building financial inclusion and increasing the proportion of lending going to the real economy SMEs. It is important not to look at this as a zero-sum game; it is not, or at least should not be, a choice between supporting either big corporates or small banks, but rather about creating a financial services ecosystem that covers everybody’s needs.

These amendments seem benign. Nevertheless, banking is a risky activity. It is a funny business: it goes out of its way to look respectable and sound, but, as we know, it is extremely frail. In the financial crisis of 2008, the country almost came to a position of collapse—much closer than we seem to remember. Only through decisive action by the Government of the time, and by other overseas Governments, were we saved from a serious financial crisis that could have crippled the world.

When looking at a bunch of amendments like this, one might be tempted to say that the PRA’s general objective will look after us, and one should remember that its general objective is promoting the safety and soundness of PRA-authorised persons. However, if these amendments were to become a trade-off between the amendments and the PRA’s general objective, that would be a step too far in the safety of the banking structure. Accordingly, I hope that the Government will have listened to the suite of sensible ideas expressed today but judge it as an overall package of goods and bring forward some proposals that capture the best without endangering the banking system. My noble friend Lord Stevenson brought up the fact that individuals desperately need a safe and orderly form of low-cost credit, and that is equally true of SMEs.

[Baroness Penn (Con)]

My Lords, as has been set out, this grouping considers issues relating to competition and proportionate regulation in support of increased competition. Increasing competition in banking has been a priority for government under successive Prime Ministers; this can be traced back to the immediate period following the financial crisis and, indeed, the work of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards, of which I know noble Lords in this Committee were members.

Amendment 29 seeks to ensure that the FCA and PRA give due consideration to competition in exercising their duties and apply their rules and regulations proportionately to different-sized firms. It is important to note that the FCA and PRA are already required to consider competition as part of their statutory objectives. It was essential to put competition at the heart of the post-2007 financial crisis regulatory reforms. For the FCA, this is one of the three operational objectives and, for the PRA, it is a secondary objective—secondary to its safety and soundness objective. Since being given their competition objectives, both the FCA and PRA have taken significant actions to improve competition in UK financial services.

I shall give some examples. First, the new bank start-up unit was set up in 2016 as a joint initiative of the PRA and FCA to make the process of setting up a new bank in the UK more straightforward. Since it was launched, 20 new banks have been authorised, and the PRA continues to ensure that steps are taken to ensure that it is acting on its competition objective. For example, it consulted in summer 2020 on its approach to new and growing banks and, in November 2020, announced its intention to consider a more proportionate prudential regime for smaller banks, which promotes growth. Secondly, the FCA launched its regulatory sandbox in 2015, the first of its kind globally. This sandbox enables businesses to test innovative propositions with customers, improving the range of services and products available to UK customers. The FCA also recently launched a new digital sandbox to allow early stage firms access to data, which enables them further to develop their innovative ideas.

To give some more examples, the current account switch service, or CASS, was introduced in 2013 to allow customers easily to switch account provider when they see a better deal. As of September 2020, customers have switched over 6.8 million times using the service. The Payment Systems Regulator has been created to ensure fair and competitive access to central payment systems so that payment systems work in the interests of the businesses and customers that use them, and an SME credit data-sharing scheme has been introduced to make it easier for challenger banks and alternative finance providers to check the creditworthiness of businesses, improving their ability to lend to SMEs. I hope that reassures noble Lords that competition is already a key priority for this Government and is being properly considered by regulators.

Amendment 43, in the name of the noble Baroness, Lady Kramer, would remove existing capital requirements for banks with assets below £100 billion. As she has already explained, the intention of this amendment is to ensure that the rules on capital requirements for these smaller banks would be replaced by PRA rules with more proportionate requirements. The Government are committed to supporting more proportionate regulation for small and medium-sized banks and enhancing competition in financial services. The delegation of the relevant prudential requirements in this Bill will allow the PRA to introduce proportionality in its implementation, where appropriate.

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, the Libor scandal has precipitated a regulatory nightmare. How is the FCA to fulfil its statutory responsibility to ensure that markets function well when one of the foundation stones of those markets, the Libor benchmarks, are to be discontinued and replaced by untried underpinning?

The change in benchmarks is not only a problem for individual contracts, it is a systemic risk that the measures in the Bill do not—the FCA itself admits—entirely mitigate. To quote the FCA:

“Where parties to contracts referencing LIBOR cannot reach agreement on how those contracts would operate in the event of LIBOR’s cessation, discontinuation could cause uncertainty, litigation or loss of value because contracts no longer function as intended. If this problem affects large volumes of contracts it could pose risks to wider market integrity of contracts/financial instruments.”


The section in the Bill dealing with benchmarks attempts to limit the potential damage. The FCA describes one area of potential damage in these terms:

“This is to cater for a scenario where either a benchmark administrator informs the FCA of its intention to cease publication of a critical benchmark, or where contributors to the benchmark have notified the administrator of their intention to withdraw submissions to the benchmark before the relevant provisions in this Bill are commenced.”

Note that this is a plausible scenario in the FCA’s view.

How is it to be met? Among other measures there is the totally unrealistic proposal in Clause 9(3) that the FCA

“compel the administrator to continue publishing the benchmark”.

I cannot think of anything more likely to precipitate the systemic events that the FCA wishes to avoid. Then, remarkably, it amends Article 22(b) so that the FCA must provide

“a written notice stating that it considers that the benchmark is not representative of the market or economic reality that it is intended to measure or that the representativeness of the benchmark is at risk”.

What do we think that would do to the markets?

Despite the attempts in the Bill to deal with the cessation of the publication of a benchmark, there is, as the House of Commons Library notes suggest,

“risk of legal challenge and prolonged market uncertainty”.

That is the core of the problem that the Libor scandal has precipitated. I admit that the clauses in the Bill do their best to mitigate the risk, but even the authors of this section know that there is no entirely satisfactory solution. All they can do is cross their fingers and hope for the best.

The greatest risks are in retail markets: the ordinary family investor or, more pertinently, the ordinary family’s pension fund and, as the noble Baroness, Lady Kramer, said, small companies. They are the ones who are really at risk. There is nothing in this Bill to protect retail customers from that risk. When the Minister replies to this debate, perhaps she could reflect on the protection that should be provided for retail customers should the worst fears of the FCA be realised.

Amendment 44 in the name of the noble Baroness, Lady Noakes, seeks further to strengthen the defences against the plausible scenario by introducing continuity of contract when a benchmark is changed. This is an undoubtedly worthwhile addition to the armoury. It does not prevent adverse market reaction and loss of value—that problem remains—but at least continuity of contract will be there.

As I see it, Amendment 45 removes protection from the retail customer by preventing

“claim or cause … or liability in damages”.

This may well be unfortunate. The noble Baroness referred to claims companies. Pernicious though they may be, they were often the only recourse of the retail customer. As I understand it, the administrators of benchmarks could implement these changes themselves because powers that are given to them under Article 23D, where they are granted discretion, allow them to implement changes themselves, without concern for any consequent damages inflicted on holders of particular financial instruments. While I understand the thinking behind this safe harbour, I fear that it stands in stark contrast to the lack of protection for retail customers. Having read this section of the Bill carefully, I feel that the benchmark consultation is clearly necessary. The problems have not as yet been solved.

[Baroness Penn (Con)]

My Lords, as this debate has illustrated, when you hear about Libor it is hard not to think about the benchmark’s manipulation in the wake of the financial crisis. However, since then there has been substantial reform to the regulation of benchmarks and significant improvements have been made to the governance and controls around the submission and administration of Libor itself.

As a result of declining activity in the wholesale lending market that Libor seeks to measure, in 2015 the Financial Stability Board recommended a transition away from certain interest rate benchmarks including Libor to alternative rates based on active and liquid underlying markets. As Andrew Bailey remarked in his speech on Libor wind-down last summer,

“Public authorities and market participants … have … been working together to transition away from reliance on Libor for a number of years.”


It remains of the utmost importance that firms continue to prioritise the move away from the use of the Libor benchmark where possible. We need to reduce the number of contracts that refer to the Libor benchmark as much as possible before the agreement between the FCA and panel banks to continue submissions to Libor to facilitate this transition ends. For most Libor currencies, that is the end of this year.

However, it has been clear for some time that there will be certain tough legacy contracts that will not be able to transition away from Libor in time. In May 2020, the Working Group on Sterling Risk-Free Reference Rates highlighted the need for legislation to support these contracts. Without government intervention, parties to these contracts would be left without a means of determining contractual obligations when panel bank submissions cease, resulting in significant disruption.

Shortly after that, the Government announced their plans to give the FCA the powers to manage an orderly Libor wind-down through this Bill in a manner that protects consumers and market integrity. This includes legislation to deal with these tough legacy contracts. The UK was the first country to set out an appropriate regulatory framework to manage the wind-down of critical benchmarks, and this legislation has been very well received by industry.

My noble friend Lord Holmes and the noble Viscount, Lord Trenchard, asked about synthetic Libor. The proposed legislation does not prescribe what a synthetic benchmark might look like but allows the FCA flexibility and discretion as to what methodology change it might choose to impose. For example, the FCA could use this power to direct a change to Libor’s methodology so it is no longer reliant on panel bank submissions. The FCA has recently consulted the market on its proposed policy approach to using this power.

Turning to the amendments, Amendment 44 would require that where the FCA has used the powers given to it in this Bill to impose a change in the methodology of the benchmark, that new benchmark must be interpreted as the same benchmark in any contracts which reference the original benchmark. Amendment 45 seeks to reduce the scope for litigation where the FCA has exercised this power.

Since the introduction of this Bill, the Government have received representations from some key industry participants, highlighting a residual risk of disruption and potential litigation that they are concerned would remain even once the FCA has exercised its powers under this Bill. This risk is separate from the wider risks and impacts on markets that would materialise if the Government had not introduced legislation under this Bill, and it is this potential residual risk that these amendments seek to address. I appreciate noble Lords’ interest in this important issue and I reassure them that the Government are committed to looking at it and, if necessary, providing industry with any reassurance it needs. But I will now turn to the two fundamental reasons why we are unable to accept these amendments.

First, critical benchmarks such as Libor are widely used in a diverse range of products and contracts across the economy, so any action of the kind proposed in this amendment would affect a wide range of individuals and businesses. This must be taken into account before determining whether and how to act. As the noble Baroness, Lady Kramer, and the noble Lord, Lord Eatwell, have described, this would impact people outside the financial services industry.

Secondly, these amendments would intervene directly in private contracts, restricting the ability of contractual parties to seek legal redress were they to disagree with the imposition of synthetic Libor. I am sure that noble Lords agree that any such interference would need to be carefully considered and designed to be as narrow and targeted as possible while achieving the intended effect. It is therefore critical that the Government consider to the greatest extent reasonably possible the full range of Libor-referencing contracts and the impact any legal provisions, such as the ones proposed in these amendments, would have on parties to these contracts before deciding how to proceed on this issue.

For example, I am concerned that Amendment 45 would provide wide legal protection to parties using the revised benchmark against all forms of claim or causes of legal action associated with the exercise of the FCA’s Article 23D(2) power, as opposed to a more targeted form of legal protection. I have not yet been convinced that such a wide-ranging legal protection is appropriate, and it could have serious and significant unintended consequences.

For these reasons, the Treasury published a consultation specifically on this matter on 15 February, which is currently open for responses. This will allow us to properly consider these issues with the benefit of feedback from a broad range of Libor users. As the consultation is still open, I cannot say at this stage whether the responses provide evidence that a provision of this nature is necessary, or how such a provision should be structured, but I reassure noble Lords that the Government take this matter very seriously. Guided by the evidence gathered through this consultation, the Government will be well placed to decide if an intervention along the lines that these amendments intend is appropriate. I therefore ask that these amendments be withdrawn.

[Baroness Noakes (Con)]

My Lords, I start by thanking all noble Lords for taking part in this debate; I think all have supported my Amendment 44 on continuity of contract, and I think the noble Lord, Lord Eatwell, expressed some concerns in relation to Amendment 45, which dealt with safe harbour.

It is worth re-emphasising a point made by my noble friend the Minister: we should not confuse what happened with the Libor manipulation scandal—which was dreadful and affected not just the London market but the New York and other markets—with the reasons for withdrawal of Libor. As my noble friend has said, these were much more technical reasons regarding the suitability, durability and stability of Libor as a benchmark going forward. It is a more technical issue than harking back to the fact that it had been manipulated prior to the very significant improvements in benchmark administration that came about as a result of the benchmarks regulation.

Financial Services Bill

Baroness Penn Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

Amendment 27 not moved.

[Baroness Penn (Con)]

My Lords, I suggest that this is a convenient moment to conclude our debate in Grand Committee today.

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

That concludes the work of the Committee this afternoon. The Committee stands adjourned, and I remind Members to sanitise their desks and chairs before leaving the Room.

Financial Services Bill

Baroness Penn Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

[Lord Eatwell (Lab)]

My Lords, in considering this Bill, we are all placed in a somewhat odd position. The Treasury is, right now, conducting a financial services future regulatory framework review. Indeed, phase 2 of consultation on that review concluded just last Friday. While I fully understand that some parts of the Bill before us are associated directly with the UK having left the European Union, other parts are not associated in that way. It is quite likely that we will be back here in a few months’ time debating the same issues all over again when the Treasury decides on its response to the consultation and brings forward legislation to implement the future regulatory framework.

It would be comforting if the Minister could assure us that we are not wasting our time but, of course, she cannot do that, because none of us knows what the final outcome of the regulatory framework review will be. None the less it would be helpful if, when she sums up, the Minister could assure the Grand Committee that the Treasury will treat debates on this Bill as, at the very least, an enhanced consultation to which the Treasury will have full regard when reaching its final conclusions.

Let us get down to business on the amendments in the names of my noble friend Lord Tunnicliffe, the noble Baroness, Lady Bowles, and myself. Every first-year student of financial markets knows that markets in retail products—financial products sold to individuals, households and small businesses—are seriously inefficient. One important reason why they are inefficient is due to asymmetric information, as the noble Lord, Lord Davies, said just now. To put it simply, the seller of the product typically knows much more about the risks involved in making a particular investment or other financial transaction than does the hapless investor. An extreme example of this is to be found when the chief economist of the Bank of England, Andy Haldane, confessed that he did not understand the pension that had been sold to him.

As the Committee will be aware, if it is the FCA’s strategic objective to ensure that the relevant markets function well, to do so in the presence of asymmetric information it has two broad operational options. Either it should regulate each individual financial product to ensure that the investor is properly informed or it could adopt the principle of Amendment 4—and, indeed, Amendment 1—and make general rules, including the power to introduce a duty of care owed by the authorised persons to consumers. Up to now, the FCA has adopted the former option and dealt with each issue as it arises. By its own admission, this has not gone very well. From its consultation entitled Our Future Approach to Consumers in 2017 through to the feedback statement published in April 2019, the FCA has wrestled with the issue of duty of care, and is still wrestling today. Yet it still persists with its failing approach of regulating each product, and that simply cannot go on.

Action is really imperative, for two main reasons: first, because of the persistent appearance of new products, such as the buy-now, pay-later schemes, which we will discuss later—persistent innovation, which the FCA meets with persistent delay. It is always playing catch-up to introduce the new rules, after taking time for appropriate consultation and so on, to deal with the new threats to the consumer.

The second reason is the now-ubiquitous sale of financial products via the internet, as referred to by my noble friend Lord Blunkett. How many of the Committee have ticked the box verifying that they have read the terms and conditions of internet sales, without a thought of ever doing so? It is the dense and incomprehensible text of those terms and conditions that is so often the electronic embodiment of asymmetric information: the very factors ensuring that the relevant markets do not function well and that the FCA does not perform its strategic objective.

Amendment 4 provides the FCA with the means to end this failure to meet the strategic objective. The enactment of the power to introduce a duty of care would place the responsibility of ensuring that markets function well firmly on the shoulders of those who have the information required to attain that goal. As my right honourable friend Pat McFadden put it when discussing the Bill in another place, with the enactment of a duty of care, financial services providers would necessarily ask themselves the question, “Is this right?” rather than what they ask themselves today, which is, “Is this legal?” That would create a real shift in how business is done. I say to the noble Lord, Lord Blackwell, that this has nothing to do with subsidies and subsidising. It is doing what is right. If the FCA had the power to introduce a duty of care, it could begin to live up to its strategic objective.

I am quite prepared to believe that our drafting of Amendment 4 contains petty infelicities. So what? What is important is the principle that the amendment embodies. I am confident that Treasury officials can always find the appropriate wording. But we are all aware that too many consumers are being treated inappropriately, whether by the mis-selling of products, denial of rights or obstructionist responses to complaints and so on. I am certain that Her Majesty’s Government wish to improve on the consumer protections previously enshrined in EU legislation. The introduction of a duty of care is a safe and sure way forward: a way to ensure that markets function well.

I regret that I cannot agree with the noble Baroness, Lady Bowles, that the duty of care should be extended to the regulator itself. That is unreasonable because it suggests that the regulator should be looking over the shoulder of the participants in every single transaction. That would require regulatory omniscience, and I think it is truly unreasonable. But I would like to say a few words in hearty support of the noble Baroness’s Amendment 72 in this group. Anyone who has laboured as a financial services regulator, as I have, will be well aware of the abuse addressed by this amendment: an abuse that has disfigured the promotion of financial products for far too long.

The failure to deal with this abuse was an important component of Dame Elizabeth Gloster’s investigation into the FCA’s regulation of London Capital & Finance plc. The abuse of promoting non-regulated activities while identifying the promoter—albeit correctly—as a regulated entity must also be addressed by the holistic evaluation of regulated entities, taking into account both regulated and unregulated activities, because, typically, the culture of a firm is not divisible. So, while I support Amendment 72 from the noble Baroness, Lady Bowles, I note that there is more to be done to implement Dame Elizabeth’s recommendations.

[Baroness Penn (Con)]

My Lords, I will start with a word of reassurance to the noble Lord, Lord Eatwell, and others that the Government will consider all the contributions to the debates on the Bill carefully, and in terms of the work they are doing on the future regulatory framework review and the broader regulation of financial services. That is an important point when we discuss these amendments. As the noble Lord just set out, the amendment to introduce a duty of care could be interpreted as quite a different fundamental approach to financial services regulation, which, with that scale of change, might be better considered as part of the future regulatory framework review. However, much work has been done on this subject and I turn to it now.

I will speak first to Amendments 1 and 4, which seek to introduce a statutory requirement for the FCA to make rules requiring authorised persons to adhere to a duty of care when providing a product or service. Amendment 4 would also require the FCA to have explicit regard for vulnerable consumers when discharging its consumer protection objective.

I am grateful to the noble Lords who put forward these amendments, which give the Committee the opportunity to discuss this important issue. I know that it was also discussed during the passage of the Financial Guidance and Claims Act, and the Government pay tribute to the work undertaken by Macmillan, whose “Banking on Change” campaign includes the proposal for a statutory duty of care. I agree with the charity that

“Money worries should be the last thing”


on a person’s mind when they are dealing with cancer, but I emphasise that the FCA is already taking steps to ensure that financial services firms exercise due care and regard when offering products, services and advice to consumers. A statutory duty of care does not add to the FCA’s existing powers in this area, and there are likely to be difficulties in applying a single duty consistently and proportionately to the wide variety of products and relationships in financial services. The Government do not believe that an additional statutory duty of care, as proposed by these amendments, is necessary.

Financial services firms’ treatment of their customers is governed by the FCA through its principles for business, as well as specific requirements in the handbook. The principles for business require firms to conduct their business with due skill, care and diligence, and to pay due regard to the interests of their customers and treat them fairly. The FCA has recourse to disciplinary action against firms that breach these principles.

The FCA has also announced that it will undertake work to address any potential deficiencies in consumer protection, in particular by reviewing its principles for business. The coronavirus pandemic has caused the FCA to delay the next formal stage of this work to allow firms to focus on supporting their customers during this difficult period. However, it remains committed to progressing this work and has announced that it aims to consult in the first quarter of this year.

I reassure the Committee that the Government believe that the FCA already has the necessary powers to ensure that sufficient protections are in place for consumers, and has the will to act, without the need for a statutory duty of care or expansion of the consumer protection objective. The Government will continue to work closely with the FCA to keep the issue under review.

Before I turn to Amendment 72, I reiterate the Government’s sympathy for London Capital & Finance bondholders. In May 2019, the Government directed the FCA to launch an independent investigation into the events relating to the FCA’s regulation and supervision of LCF. Dame Elizabeth Gloster’s investigation was provided to the FCA on 23 November 2020. It concludes that the FCA did not effectively supervise and regulate LCF during the period. She makes nine recommendations for the FCA, focusing on how it should improve its internal authorisation and supervision processes. The Government laid the report, along with the FCA’s response, before Parliament on 17 December. In that Written Ministerial Statement, the Government welcomed the FCA’s apology to LCF bondholders and its commitment to implement all of Dame Elizabeth’s recommendations. Dame Elizabeth also made four recommendations for the Treasury, which the Government have accepted in full.

Turning to the specifics of the amendment, through its rules and guidance the FCA already requires financial promotions to be clear, fair and not misleading. As part of those rules, authorised firms are specifically required to ensure that if they refer to their authorised status in the context of any communications relating to unregulated activities, they make it clear that those specific activities are not regulated. Misleading statements by a firm may involve a breach of the FCA’s existing rules and the FCA has broad powers to enforce against such breaches. Depending on the severity of the breach, it may also be an offence under Part 7 of the Financial Services Act 2012.

The Treasury has committed to keeping the legislative framework underpinning the regulation of financial promotions under review. As part of this, the Treasury is actively working with the FCA to consider whether paid-for advertising on online platforms should be brought into the scope of the financial promotions regime.

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[Viscount Trenchard (Con) [V]]

My Lords, I declare my interests as stated in the register. I apologise to the Minister and the Committee for failing to get my name on the speakers’ list for this group on time and appreciate been given a chance to speak after the Minister. In the circumstances, I will confine my remarks to Amendment 1, introduced by the noble Lord, Lord Sharkey, with whom I often agree. However, on this occasion I strongly agree with what my noble friend Lord Blackwell said.

On the duty of care, the FCA has itself, as other noble Lords said, consulted on this question and provided feedback in November 2019. Many respondents thought that, rather than further complicating the FCA’s responsibilities, with the commensurate risk of increased litigation, it would be better to let the newly introduced senior managers and certification regime settle down.

I suggest that there is already evidence of cultural change in many regulated companies as a result of this, and that those who think we should not at this time bring in changes likely to make the FCA more cautious in the exercise of its functions are correct. It surprised me that while many respondents thought that the FCA should be given a duty of care, most of them thought that the duty should not be enshrined in law because it would lead, inter alia, to duplication of existing obligations, the loss of regulatory agility, and costs, delay and the stress of litigation for consumers. Even the adoption of a non-statutory duty of care would have many of the same effects. Surely the thing we most want to avoid, to ensure that the City retains its position as one of the two leading global financial centres, is a loss of regulatory agility.

[Baroness Penn (Con)]

My Lords, I believe that contribution has put another side of the argument. It is the balance between these two perspectives that the Government seek to strike. We also think the FCA is in the right position to strike it, with its obligations to protect consumers and its detailed understanding of the markets that it regulates.

[Lord Sharkey (LD) [V]]

My Lords, I thank all noble Lords who have spoken on this group and I note a largely positive view of a duty of care. I thank the Minister for her response. Her counterpart in the Commons took 58 words to respond to a similar proposition; the noble Baroness took more than that, but notwithstanding the length of her response I was not convinced by any of her arguments. Many of them seemed much like medium to long grass.

The case for a duty of care still seems clear and urgent. Essentially there are, as we said, five key reasons for adopting the duty. The first is that FSMA does not protect consumers adequately; the second is that the FCA is always playing catch-up. The third reason is that poor behaviour by firms continues, as I set out in my opening remarks. The fourth is that getting redress after the event is time-consuming and very stressful, and the fifth is the incentive for real and lasting cultural change in our financial services industry. All these seem to be conclusive arguments in favour of a duty of care.

The Minister’s arguments against seem to have a strange Alice in Wonderland quality to them. They amount to saying that it is not in the consumer’s best interests that financial services firms should be obliged to act in the consumer’s best interests. That simply cannot be right. We will return to this issue on Report but, in the meantime, I beg leave to withdraw the amendment.

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Amendment 4 not moved.

[Baroness Penn (Con)]

My Lords, I suggest that we adjourn these proceedings for 10 minutes for a short break.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, faced with speaking on this group, I looked at the Bill as a whole and, to a surprising extent, there is little reference to consumers or people who depend on the banking sector. The failure to contain these areas was brought out by the first group of amendments, where there was a very strong thrust to require the sector to exercise a duty of care.

This group, which I support, seeks to isolate a singular problem and address it directly. It is a problem that is not just unfair but evil, and one we find across many sectors—the problem of bullying. In many sectors, size is an advantage, and because of that, a small number of firms grow to a large size. The problem with size is that it enables bullying; you find it in many sectors, including airlines and supermarkets and with Amazon and Facebook. The problem with bullying is that, used skilfully and ruthlessly, it enhances profit and, because it enables profit, it is pursued, often covertly. It is the classic example of why benign regulation is so important in our economic and financial landscape.

These amendments are a bold move to add to that benign regulation by directly addressing the evil of bullying. This will be good for individuals but also—and this is a very important point—for SMEs. I was at the large end of the scale, and we were able to see off any attempt at bullying because we were big enough and ugly enough to be able to fight the problem with an equality of arms. The problem with an SME—and often we are talking about individuals—is that the concept of equality of arms in the courts is almost impossible; they can easily use up their revenue for a whole year on one court case. These amendments address the issue together.

I know the Government are likely to say, “Not now. We will do it later. We are looking at another area.” That just cannot go on, and I urge the Government to think about these ideas and work out some way to introduce this. The banking industry, in particular, has an appalling reputation. The evil things it has done over the years are frightening. It is difficult to believe, in a sense, that those evils were done by malice; but it is very easy to understand how the opportunities present themselves to behave in this way and generate more profit, more praise and more reward.

[Baroness Penn (Con)]

My Lords, Amendments 5, 73 and 95 relate to the protection of consumers and small businesses against misconduct. The Government are committed to ensuring that consumers and businesses can use financial services and products with confidence and that there are appropriate protections in place.

Before I comment on the specific amendments, I want to take a moment to set out the wider context. The Government have given the FCA a strong mandate to prevent and take action against inappropriate behaviour in financial services, and it has a wide range of enforcement powers to protect consumers and small business. Noble Lords will appreciate that the majority of business lending is unregulated—that is what the amendments test and probe—but the Government are committed to providing appropriate safeguards for SMEs in accessing financial services, while seeking to avoid driving up the costs of lending and unnecessarily reducing affordable credit options.

In the UK, loans of less than £25,000 to small businesses are treated as regulated consumer credit agreements for the purposes of the Financial Services and Markets Act 2000. This means that most small businesses already receive regulatory protection. In addition, in April 2019, the remit of the Financial Ombudsman Service was expanded to allow more SMEs to put forward a complaint. This covers 99% of small businesses in the UK. If a complaint is upheld, the FOS could make an award of up to £350,000 in relation to acts or omissions that took place on or after 1 April 2019, when its remit was expanded.

Small and medium-sized businesses also now have access to the Business Banking Resolution Service, an independent, non-governmental body which will provide dispute resolution for businesses which meet the eligibility criteria. The BBRS will address historic cases from 2000 which would now be eligible for FOS but were not at the time, and which have not been through another independent redress scheme. It will address future complaints from businesses with a turnover between £6.5 million and £10 million.

It is with that context in mind that I turn to the specific amendments. Amendment 5 seeks to protect consumers and small businesses from certain types of exploitation by financial services firms providing services to those groups. It proposes imposing new obligations on the FCA when it exercises its general functions. However, it risks putting up the cost of borrowing and limiting the availability of products and services. For example, it could require the FCA to make rules creating additional safeguards designed to ensure that exploitation, as defined by the amendment, does not occur. Given the different levels of financial sophistication of different small businesses, the rules may need to be designed to protect those with minimal levels of sophistication. Given the potential complexity of such new rules, financial institutions may be more reluctant to lend to small businesses.

Amendment 73 would duplicate similar existing protections that I have previously outlined, in a way that could be confusing to consumers, SMEs and lenders. On the issue of unconscionable conduct, in response to the banking crisis and significant conduct failings, Parliament passed legislation leading to the FCA and PRA applying the senior managers and certification regime. The regime aims to reduce harm to consumers and govern market integrity by making individuals more accountable for their actions.

Amendment 95 would broaden the scope of those parties who can seek action for damages related to mis-selling of financial services. However, I argue that these changes are unnecessary, as businesses already have robust avenues for pursuing financial services complaints, which I have already set out.

The Government are committed to regulating only where there is a clear case for doing so. This is to avoid putting additional costs on lenders that could ultimately lead to higher cost for businesses; these would likely be passed on to consumers and could restrict access to affordable finance—a key Government priority.

The Government’s view is that each of these amendments risks duplicating the existing protections that I have set out, while also making lending to SMEs more complex, which could make it harder for them to access affordable credit. Our view is that the existing protections get the balance right between protecting consumers and small businesses and not unduly restricting access to affordable credit options. For these reasons, I ask that these amendments be withdrawn.

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

I have received one request to speak after the Minister from the noble Viscount, Lord Trenchard, who I now call.

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[Viscount Trenchard (Con) [V]]

My Lords, again, I am grateful to the Committee for allowing me to speak after the Minister. I will speak only to Amendment 73 because it introduces another subjective concept: “unconscionable conduct”.

I searched for instances of “unconscionable” on the FCA’s website and found only one: John Griffith-Jones, the former chairman of the FCA, for whom I have the highest regard, said in a 2014 speech:

“In 1951 in the Money Lenders Act we described a 48% interest rate as ‘unconscionable’.”


It occurs to me that, as recently as 2018, the main banks were charging 1p per £7 borrowed per day for arranged overdrafts. This was about 50% per annum, but it was not disclosed; indeed, when the banks stopped telling people what their APR was and instead started telling them what the fee per £7 borrowed per day was, this was welcomed by the FSA, which thought that requiring to tell consumers the real interest rate was unhelpful because they would not understand it.

Now that the banks have reverted to informing customers of real annual interest rates, albeit in very small print, the cost of an arranged overdraft has gone down from around 50% to around 40%, which is possibly still unconscionable in today’s world of negative interest rates. As such, I certainly do not think that we should rely on the FCA to decide what is and is not unconscionable. Does the Minister agree that the banks should make clearer what real interest rates on overdrafts are?

[Baroness Penn (Con)]

My Lords, clarity around all terms and conditions is, of course, to be welcomed. I agree with my noble friend that one challenge with these amendments is potentially introducing new concepts, which might need to be defined through regulation, where we think that there are existing protections in place and the effect could be duplicative.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I thank all those who have taken part in this debate; it has been short but interesting, and I thank those who have supported the concept that I am trying to elaborate. What the noble Viscount, Lord Trenchard, has just said is probably true to some extent—why should we rely upon the FCA for this? It is true that this probably should be more of a general legal offence of unconscionable conduct, which is what they have in Australia. So there is no point trying to argue that, in a common law country with a similar kind of legal system, you cannot work out how it happens and whether it is effective: I can tell you that it is.

As the Minister elaborated, the problem with having a subjective measure—as the noble Viscount, Lord Trenchard, called it—is that you then have to put a whole load of rules around it. That is exactly the problem with the FCA. It has done it with the senior managers regime, something that I always understood Parliament wanted to be a subjective measure—that is, if you behaved badly and something happened on your watch, you were responsible. That has now been tied up with contracts approved between the regulator and the employees in the businesses. Instead of capturing the people at the top, it has pushed responsibility down the chain. The same has happened with “fit and proper”. The FCA has chosen to redefine what that means so it will catch only very extreme cases rather than bad behaviour.

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[Lord Tunnicliffe (Lab) [V]]

My Lords, the noble Baroness, Lady McIntosh, mentioned that my noble friend Lord Stevenson has retired from the Front Bench, much to my personal disgust—because we are short of talent and he has a great deal of it. However, it is my duty to point out that the amendment he has proposed has the full support of the Labour Front Bench, although it touches on a subject that has terrified me for most of my life, although for no good reason.

The idea of poverty is very remote to most of us. When you think of the number of people who live in poverty, particularly in this crisis, in the areas where the support schemes have not worked properly, it is terrifying and difficult to understand how people survive. The problem with poverty is that the individuals involved lose their equity in society—they get to a point of having nothing to lose, and then we worry about the fact that they do not behave in the way we would like them to.

I was brought up in—how can I put it?—a low-income household, where we had probably the equivalent of the living wage, but it was not nearly as bad as today. First, I believe there is more financial inequality today. Secondly, employment among the working class in my youth and that of my parents was much more secure. Finally, it was a cash society. Whatever else you might say about cash, it is very easy to understand. In the non-cash society that we are drifting into—indeed, we are largely already in it—you can barely survive without a bank account. Creating basic bank accounts is very important but, whether we like it or not, many people will not understand the mechanisms. The situation of not working in cash means that it so much easier to spend money and to lose control of what your liabilities and payments are. Much as we may deride the jam-jar approach to running a domestic budget, it was easy to understand and, therefore, easy to manage.

Anyway, what can we do about inequality and security? That, of course, is the big issue in society; it has been in the past, it is particularly bad now, and it is something that we will probably be working on for the rest of our lives. However, we can do something about understanding society. I agree with the noble Baroness, Lady Neville-Rolfe, that this should start in school. I am a great believer that the curriculum on what one might loosely call citizenship should be much wider in many ways, and there is no question but that financial literacy and understanding should be part of it. This curriculum cannot be completed in school because you only really learn when you come across real-life challenges; so, after school, a concept of financial well-being is needed that will be part of the future world. I believe that these amendments could lead us strongly towards that better future.

[Baroness Penn (Con)]

My Lords, I welcome the opportunity presented by this group of amendments to discuss the importance of financial well-being and inclusion. The Government are proud of our strong record, and I know that making progress on these issues is a personal priority for both the Economic Secretary to the Treasury and the Minister for Pensions and Financial Inclusion. However, I recognise, of course, that there will be people who are struggling with their finances and need further support, particularly at this challenging time.

Given that these are probing amendments and given the invitation, at least from some, for a high-level response, I thought it would be helpful to set out briefly the Government’s approach, working closely with the FCA as well as a wide range of stakeholders, to promote financial inclusion and financial well-being in the UK. The Government produce an annual financial inclusion report; the most recent of these was published in November 2020, outlining our response to the Covid-19 pandemic as well as the progress we have made on issues such as access to affordable credit, support for credit unions and enhancing the use of financial technology. Since 2018, the Government have convened the biannual Financial Inclusion Policy Forum, bringing together key leaders from industry, charities, consumer groups and the FCA, as well as government Ministers, including the Economic Secretary to the Treasury, who was responsible for the passage of this Bill through the other place.

The Government also work with a number of stakeholders to promote people’s financial well-being. This includes engaging closely with the Money and Pensions Service, an arm’s-length body of government, which published its national financial well-being strategy in January last year. The strategy sets out its five agendas for change to improve the UK’s financial well-being over the next 10 years. This includes goals to increase the number of children and young people receiving financial education, to encourage saving, to reduce the use of credit to pay for essentials, to enhance access to affordable credit, to increase the number of people receiving debt advice and to support people to plan for later in life. Delivery plans will be published by the Money and Pensions Service later in the spring and the Government are supportive of this work.

The Government also work with Fair4All Finance, an independent organisation funded by £96 million from the government-backed dormant assets scheme, which was founded to improve the financial well-being of vulnerable consumers through increased access to fair and affordable financial products. To date, Fair4All Finance has focused on affordable credit and developed an affordable credit scale-up programme to help the sector develop a sustainable model for serving people in vulnerable circumstances.

The Government also work closely with the FCA, and I reassure the noble Lord, Lord McNicol, that the FCA is committed to improving the way that regulated firms treat vulnerable consumers. It is one of the FCA’s key areas of focus in its current business plan. Its rules ensure that the fair treatment of vulnerable consumers is required by firms and embedded into its policies and processes. I will give a couple of practical examples, as mentioned in previous groups. First, the FCA’s consultation on the fair treatment of vulnerable consumers closed in September 2020 and the FCA intends to publish further guidance on this matter imminently. Secondly, as discussed in the context of the amendments on a proposed duty of care, the FCA has announced that it will undertake further work to address any potential deficiencies in consumer protection, particularly by reviewing its principles for business. While the FCA delayed this work because of the pandemic, it aims to consult in the first quarter of 2021. I also assure the noble Lord that a number of other matters that he raised, such as the issue of buy now, pay later, will be discussed in subsequent groups of amendments.

I understand that these are probing amendments. I hope that noble Lords will take reassurance, from the measures that I have set out so far, of the Government’s commitment to this area and the commitment by the FCA from the work under way. However, as my noble friend Lady Neville-Rolfe has argued, the Government do not believe that further statutory duties on the FCA in this area is the right approach.

On the challenge of the noble Lord, Lord Stevenson, the Government see the value of considering the broader concept of financial well-being to include access to affordable credit and consumer protection, as well as financial education, as an important area for future work by the Government, the FCA and associated stakeholders.

I hope that the Government have demonstrated their commitment to taking this work forward, working closely with the FCA and a wide range of stakeholders, and that this provides sufficient reassurance to noble Lords of the Government’s commitment on this topic for them to withdraw their amendments.

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

I have received no requests to speak after the Minister, so I call the noble Lord, Lord Stevenson of Balmacara.