Finance (No. 2) Bill

Debate between Baroness Penn and Lord Eatwell

Committee negatived & 3rd reading
Tuesday 4th July 2023 Lords Chamber

[Baroness Penn (Con)]

I am saying that that is most certainly a risk. There is a high amount of uncertainty about the impact of any changes in that area, and it would not necessarily lead to an increase in revenue, as is being relied upon by the Labour Party.

[Lord Eatwell (Lab)]

My Lords, surely there is not that degree of uncertainty, since the Government did raise a base levy on non-doms. Surely, then, we have evidence from the mobility of non-doms reacting to that base levy. What is the evidence? I suggest it is evidence of no mobility at all.

[Baroness Penn (Con)]

My Lords, I was speaking about the difference between changes to any scheme and abolition of the status altogether, but I would say that there is a high degree of uncertainty about the impact of changes made in this area.

Finally, I turn to the pension tax changes made through this Bill and the Budget, which many noble Lords have spoken about. To respond to the noble Lord, Lord Eatwell, I was not implying that only the most highly skilled and productive workers benefit from these changes, but many of them will. They have been designed in response to feedback from the NHS in particular that there was an impact on retention of the most skilled staff.

Regarding the suggestion that a doctors-only change could have been implemented instead, unlike more targeted policies, the Government have considered a range of options to address this issue over a number of years. One of the elements which means that a more targeted approach would not be appropriate in these circumstances is the time it would take to implement. These changes could be implemented quickly, from April 2023, minimising the risk of early retirements in the NHS before any changes take effect.

In the Statement taken before this debate, we heard about the pressures on our NHS workforce and the pressing need to address those immediately. If we were to take a targeted approach to one profession—NHS doctors—we may well come back to the same issue, as the same issues are faced by employees in other sectors, such as air traffic controllers, the police, the Armed Forces and senior teachers. To introduce targeted measures for each profession would not be an effective way to deal with challenges across those different workforces.

The Government are aware of the concern raised by the noble Lord, Lord Eatwell—

[Baroness Penn (Con)]

I think one of the reasons why I frustrate the noble Lord in this area is that the Government do not normally comment on individual taxpayers. On his more general point, the Government have taken action to tackle tax avoidance and evasion over many years and to reduce its incidence in our economy.

Finally, I turn to the impact of the change to the annual allowance and its potential inheritance tax impacts. Noble Lords are right that the annual allowance has meant that there has been a limit on how much individuals can put into their pensions and therefore pass on. The Government are aware of concerns that some may be using their pension pots to reduce future inheritance tax liabilities, rather than for their purpose: to fund their retirement. As with all taxes, the Government keep the rules under review.

[Lord Eatwell (Lab)]

My Lords, before the noble Baroness moves away from the lifetime allowance, I asked her if it was true that this £1 billion was funded by increased borrowing. In her summing up just now, she said very clearly that unfunded tax cuts increase inflation; those were her exact words. Is this not an unfunded tax cut?

[Baroness Penn (Con)]

The OBR has been clear about its forecast for the public finances, which has shown that they are more resilient than previously expected. Debt is lower in every year of the forecast compared with the November forecast. Borrowing falls year on year and the current Budget is in a surplus from 2026-27. All these decisions are taken in the round and assessed against the Government’s fiscal rules and the independent OBR’s forecasts for government borrowing and debt.

We have had a wide-ranging debate today, but if we return to the measures in the Bill, they form an essential part of our plan for the economy. They support enterprise, business investment and employment, including in the NHS. The Bill seizes the freedoms now available to the UK outside of the EU, addresses international tax avoidance and the problem it causes for the sustainability of our public finances, and will help simplify our tax system. For these reasons, I beg to move.

Financial Services and Markets Bill

Debate between Baroness Penn and Lord Eatwell

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Eatwell (Lab)]

I actually said the opposite; access to cash will not be useful if the cash cannot be used to make a transaction. Increasingly, transactions cannot be made with cash but only electronically.

[Baroness Penn (Con)]

Some of the implications of the noble Lord’s contribution on potentially obliging people to use certain payment systems show that including financial inclusion under the consumer protection objective could have quite far-reaching consequences that we would want fully to think through and consult on before changing the objectives. That lies behind the Government’s concern about this approach.

As I was saying, this does not mean that there is no action to promote financial inclusion by the Government and the regulators. Major banks are required to provide basic bank accounts for those who would otherwise be unbanked. As of June last year, there were 7.4 million basic bank accounts open and during 2020-21 around 70,000 basic bank account customers were upgraded to standard personal current accounts, graduating to more mainstream financial services products. The FCA’s financial lives survey has shown that those aged over 75 are becoming more digitally included, with 64% digitally active in 2020 compared to 41% in 2017. However, we absolutely recognise that there is more work to be done in this area. The Government have allocated £100 million of dormant asset funding to Fair4All Finance, which is being used to improve access to affordable credit, with a further £45 million allocated recently to deliver initiatives to support those struggling with the increased cost of living.

While the FCA has an important role to play in supporting financial inclusion, it is already able to act where appropriate. For example, it has previously intervened in the travel insurance market to help consumers with pre-existing medical conditions access affordable credit. As the noble Baroness, Lady Chapman, recognised, the new consumer duty developed by the FCA is yet to come into force and we are yet to feel the full benefits of that. However, importantly, these issues cannot be solved through regulation alone. Where there are gaps in the provision of products to consumers, the Government will continue to work closely with the FCA and other key players across industry and the third sector to address them.

I turn to Amendment 14 from the noble Lord, Lord Davies of Brixton. I reassure him that the FCA is already well placed to take into account the protection of consumers’ mental health within its existing objectives. The regulator’s vulnerability guidance sets out a number of best practices for firms, from upskilling staff to product service and design, and specifically recognises poor mental health as a driver of consumer vulnerability. Where FCA-authorised firms fail to meet their obligations to treat customers fairly, including those in vulnerable circumstances, the FCA is already empowered to take further action. Since the publication of the vulnerability guidance, the FCA has engaged with firms that are not meeting their obligations and agreed remedial steps.

In summary, the Government believe that this is an incredibly important issue but consider that it is for the Government to lead on the broader issues of financial inclusion. Where necessary, in the existing framework the FCA is able to have the appropriate powers to support work on this important issue. While the Government do not support these amendments, I hope that I have set out how they are committed to making further progress in this area. I therefore hope that my noble friend Lord Holmes will withdraw his amendment and that the noble Lord, Lord Davies of Brixton, and the noble Baroness, Lady Chapman, will not press theirs when they are reached.

Financial Services and Markets Bill

Debate between Baroness Penn and Lord Eatwell

Committee stage
Tuesday 21st March 2023 Grand Committee

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I will speak first to Amendment 216, which pertains to the Government’s announced reforms to Solvency II, made possible through the Bill’s revocation of retained EU law.

The Government are reforming Solvency II, the rules for prudential regulation of the insurance industry currently set by the EU, to reflect the UK insurance market’s unique features. These reforms will provide incentives for insurers to increase investment in long-term productive assets by more than £100 billion. They will also benefit consumers by increasing insurers’ ability to provide a broader range of more affordable products.

The Government have committed to make changes to the matching adjustment, an accounting mechanism whereby insurers can match their long-term liabilities with long-term assets and hold less money to pay out claims. These reforms will incentivise firms to invest significantly more in long-term productive assets such as infrastructure. This investment will support growth across the UK and the Government’s climate change objectives.

The noble Baroness’s amendment would instead result in a stricter treatment for some assets than under current rules. I reassure noble Lords that the Government’s reforms to Solvency II strike a careful balance between boosting growth across the economy and maintaining high standards of policyholder protection. Insurers will still be required to hold extra capital to safeguard against unexpected shocks, they will still have to adhere to high standards of risk management, and they will still be subject to comprehensive supervision from the PRA, our world-class independent regulator.

The noble Baroness, Lady Kramer, asked whether we would replicate the Canadian Government’s position with regard to pensions and insurance firms in this context. She referred to statements in the Budget about pension funds—although I think they were focused more on defined contribution pension funds than defined benefit pension funds. I do not know the detail of the specific Canadian regime, but the reforms proposed here do not pose risks to financial stability. As I said, each insurer must still hold enough capital to survive a 1-in-200-year shock over one year. Insurers will still have to adhere to the high standards of risk management. The Government and the PRA have announced a series of additional supervisory measures that the PRA will take forward to ensure that policyholders remain protected. For example, the PRA will now require insurers to take part in regular stress-testing exercises.

[Lord Eatwell (Lab)]

May I comment on the issue of stress tests, which the Minister also raised during Questions this afternoon? You can stress test only risks that you know are there. It depends on the underlying model that you create to examine in your stress tests. Thus stress tests did not pick up the LDI problem at all because it was not there in the models that were used. In financial services, risks appear in entirely unexpected places, and relying on stress tests is, and has been demonstrated to be, a very weak answer. She should reconsider her reliance on this argument.

[Baroness Bennett of Manor Castle (GP)]

Since it is related, I also question the readiness for a 1-in-200-year shock. We have seen very similar kinds of mathematical approaches, if you like, taken to issues such as flood risk and other climate risks, and they have been found to be very ineffective in dealing with problems. They only increase the failure to understand risks.

British Banking Sector

Debate between Baroness Penn and Lord Eatwell

Tuesday 21st March 2023 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, I found the noble Baroness’s position on the current status of the banking system to exhibit extreme complacency. Is she aware that Credit Suisse was very highly capitalised and had in place all the financial anchors on which she relied in her Answer? Yet Credit Suisse has collapsed. Do the so-called Edinburgh reforms not actually come up to this: we are going to make the banking system more competitive, which equals taking greater risks?

[Baroness Penn (Con)]

My Lords, in the Financial Services and Markets Bill we are introducing a new objective for the regulators to look at competitiveness, but we are clear that that objective comes second in the hierarchy to the systems objectives around financial stability. We think that strikes the right balance. We are absolutely not complacent about the global banking system and the wider financial services sector, but it is important to recognise that we are in a different position from 2008 and that we are making further changes to ensure the resilience of our sector. For example, the Bank of England announced in December that, for the first time, it will run an exploratory stress-test exercise focused on non-bank financial institutions, recognising the increased risk posed there. We will continue to do what we need to do to ensure financial stability in this country.

Financial Services and Markets Bill

Debate between Baroness Penn and Lord Eatwell

Committee stage
Tuesday 7th March 2023 Grand Committee

[Baroness Penn (Con)]

My Lords, we were addressing the question of when alternative service provision is put in place and the accessibility of that service provision.

I have addressed the point made by the right reverend Prelate the Bishop of St Albans about connectivity. He also made a point about customers needing, for example, a smartphone to make payments or access online banking. The FCA has stated that it expects payment service providers to offer solutions that work for all groups of people. It encourages all firms to consider the impact of their solutions for customers. The regulators’ guidance recognises that not all customers will have mobile phones or a reliable signal and that viable alternatives should be provided in these situations.

All service providers, including banks and building societies, are bound under the Equality Act to make reasonable adjustments where necessary. Many of them support access to digital services through initiatives to distribute devices, teach skills, or facilitate support networks.

As my noble friend Lord Holmes highlighted, moving towards digital can create opportunities for accessibility but it can also create barriers. It is important that we embrace these technological changes in ways that reduce those barriers, so his point about ensuring that interfaces, including ATMs and point-of-sale terminals, are accessible is really important.

[Lord Eatwell (Lab)]

Would the Minister indulge me for a moment? I have been intrigued by her discussion of the role of digitisation. I refer to Amendment 184, tabled by my noble friend Lord Tunnicliffe, on the duty to collect data on cash acceptance.

When teaching monetary economics, the first thing that you ask students to understand is, “What is money?” Money is something that is generally accepted in discharge of a debt. That is the definition of money. The issue of cash acceptance is therefore vital as society develops in the way that the noble Baroness, Lady Noakes, outlined so clearly. What will happen is that, for the section of society who rely on cash—several million people—their cash will no longer be money. It will no longer be generally acceptable in payment of a debt. In those circumstances, the digital instrument will be crucial. However, if the digital instrument is issued only by companies, namely banks, to those who are customers of the banks, who have some basic criterion, it is surely the responsibility of the state to issue a digital instrument that is available to all citizens.

That being the case, to get to that stage, we need to know how cash is generally accepted. Therefore, the amendment, which contains a duty to collect data on cash acceptance, is vital for the development of future policy with respect to cash and digital instruments. The Minister rejected the amendment by saying that it is not the FCA’s responsibility. Can she tell me which department of government has this responsibility to collect data on cash acceptance?

[Baroness Penn (Con)]

My Lords, there are a number of ways to tackle the issues that the noble Lord referred to. There are various statistics around payment methods used by consumers in the UK; I quoted some at the start of my speech. The Government have not mandated service providers to accept certain forms of payment; that is not the approach we intend to take to ensure that people continue to have access to cash or money. I have said that, in supporting businesses’ access to deposit services, that will support people’s ability to use their cash as a form of payment.

The noble Lord also raised the question of a digital form of money. That is a question that the Government have looked at very carefully. We launched what I think was a joint consultation between the Government and the regulators, looking in more detail at the question of a central government digital currency and how to take forward that work, as well as considering questions such as those from the noble Baroness, Lady Fox, about privacy issues in a world of having a digital form of money versus having cash as a form of money.

I understand the importance of having a picture and the data that allows us to understand what is going on. I do not think that the data is necessarily the gap here; it is about how you provide for the ongoing use of cash in a society where rapid changes are being made. Our approach to that has been through legislating in this Bill on access to cash withdrawal and deposit facilities.

I was just talking about the importance of the accessibility of payment interfaces, including ATMs and point-of-sale terminals. I am pleased that UK Finance and the RNIB have developed accessibility guidelines for touch screen chip and PIN devices, as well as an approved list of accessible card terminals. The Government’s disability and access ambassador for banking, Kathryn Townsend, also encourages a consistent consumer experience and engagement with deaf advocacy groups.

Autumn Statement 2022

Debate between Baroness Penn and Lord Eatwell

Tuesday 29th November 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, I thank all noble Lords for their contributions to this debate. Given the range of expertise that has been contributed today, I will spend my time directly addressing as many noble Lords’ comments as possible.

Many noble Lords reflected on the economic circumstances that we find ourselves in. My noble friend Lord Lamont is correct in his analysis that there is no greater enemy than inflation. He reminded the House, as did the OBR, that the inflation we face is predominantly down to global forces, as my noble friend Lord Flight also noted. High inflation puts pressure on households managing those rising costs and, in turn, dampens growth. We have to be honest with people that we cannot shelter them from all of the effects of this economic storm. In our fiscal policy, we must be careful not to stimulate the economy in a way that makes it more difficult for the Bank of England to reduce inflation, leading to higher interest rates. So we have had to target our fiscal policy carefully.

But it is worth reminding noble Lords of the extent of the support that we are providing. Overall policy decisions since the Spring Statement provide support of £64 billion this year and £40 billion next year, which represents a combination of universal support, through the energy price guarantee, and targeted cost of living payments. In response to the noble Lord, Lord Rogan, the Government are working to ensure that the people of Northern Ireland receive energy bills support scheme support as soon as possible. I reassure him and the people of Northern Ireland that support will reach them this winter.

We have also taken action to uprate pensions and benefits in line with inflation, which I note, in the context of the contribution of the noble Lord, Lord Rooker, was a recommendation from Barnardo’s. We have accepted the Low Pay Commission’s recommendation to increase the national living wage by 9.7%.

Some noble Lords, including the noble Lord, Lord Fox, questioned the profile of the Government’s consolidation plans. But, again, we have had to strike a balance, providing support to households and the economy while inflation is high and growth is low—then, once growth returns, we will increase the pace of consolidation to get debt falling. The OBR delivered its verdict on our plans, saying that the recession will be shallower than it would otherwise have been, jobs will be protected and inflation will come down.

I must also correct the assertions of the noble Lords, Lord Hain and Lord Howarth of Newport, the noble Baroness, Lady Jones, and others that these plans are a return to austerity. In 2010, total departmental spending fell by about 3% a year; in this Parliament, it will rise at 3.6% a year in real terms. This is not just more money for public services; it is also considerably more money than the Benches opposite have committed to.

The noble Lord, Lord Hain, also claimed that the Autumn Statement would open the door to a Labour Government, but I remain slightly at a loss as to what Labour’s economic plans are. The noble Lord opposite made a valiant attempt to set some of them out, but I remain unclear: does it sign up to the need to consolidate our public finances? If it does, does it agree that we have taken a balanced approach between tax and spend? If it does not, what would it do differently?

I also profoundly, and perhaps unsurprisingly, disagree with the Benches opposite on this Government’s economic record. Over the last 12 years, alongside EU exit, the Government have had the third fastest growth in the G7. Since 2010, we have grown faster than France, Germany, Italy or Japan, and we have the lowest unemployment in nearly 50 years.

I will correct one further point from the noble Lord, Lord Razzall, and others, on the London Stock Exchange missing out to Paris. We had a Question on this the other week, where we addressed in quite a lot of detail why that is not the case. I also thank the noble Baroness, Lady Kramer, for reminding us of Labour’s own record on the economy.

Perhaps it is time for a little more consensus, and, in this debate, I heard more consensus on the need to improve productivity. Many noble Lords—including the noble Lord, Lord Eatwell, my noble friend Lord Horam and others—spoke about the need for greater investment in public sources of growth. The Government agree, which is why public spending on capital investment will remain at the record highs set at the 2021 spending review, delivering more than £600 billion of investment over the next five years. I can only ask the noble Lord, Lord Eatwell, why he could not persuade his own party of the need for this in government, with capital budgets next year being more than double those under the previous Labour Government.

Noble Lords also spoke powerfully of the need to improve private sector investment, and many spoke about the need to support R&D. The noble Lords, Lord Fox and Lord Londesborough, among others, expressed concern about the Government’s planned changes to R&D tax credits for SMEs, and many noble Lords spoke about the importance more broadly of R&D, including my noble friend Lady Blackwood. I assure noble Lords that the Government remain unequivocal in their support for R&D, including recommitting to the largest ever R&D spending increase over an SR period. Our aim is to ensure that the spending is as effective as possible and to do more to work towards a simplified, single R&D tax credit for all.

The noble Lord, Lord Londesborough, asked whether the Government have considered the impact on productivity of the changes that we are proposing. From my experience looking at the R&D tax credit, the officials working on this think of almost nothing other than how we can make the R&D tax credit system the most effective it can be. We must recognise that the SME scheme has become a target for fraud. That is not to say that noble Lords did not make important points on the need to support research-intensive SMEs in particular. Ahead of the Budget, the Government will work with industry to understand whether further support is necessary for R&D-intensive SMEs without significant changes to the overall costs of the scheme. Over the SR period, we also increasing funding for Innovate UK by 50%, and 70% of Innovate UK’s grants benefit small and medium-sized enterprises.

Also on investment, the noble Lord, Lord Bilimoria, asked about doing more regarding small modular reactors. I agree with him that, for Britain to achieve energy security, a pipeline of new nuclear is needed, alongside the large-scale project that we have committed to in Sizewell C. Today, the Government have confirmed their commitment to set up Great British Nuclear, an arm’s-length body which will develop a resilient pipeline for new builds beyond just Sizewell C.

On energy more broadly, many noble Lords, including the formidable noble Baronesses, Lady Hayman and Lady Jones of Moulsecoomb, raised questions about our approach to energy and climate change. I reassure noble Lords that the Government remain fully committed to reaching net zero by 2050, and to seizing the opportunities for growth through that transition.

On specific questions around the energy profits levy, several noble Lords, including the noble Lord, Lord Sikka, expressed concern about the design of the levy and the investment incentives in it. The Government have always been clear that the tax regime is intended to strike a balance between ensuring a fair tax return for the UK from its resources and continuing to encourage investment in the North Sea, supporting jobs and our energy security. I reassure the noble Lord that the Autumn Statement sets out that the Government expect to raise £41.6 billion from the EPL between 2022-23 and 2027-28, in addition to the £39 billion paid through existing taxes, ensuring that oil and gas companies pay their fair share.

The UK will also receive tax revenues from the investments made under the investment allowance, as and when they generate a profit. Given that these companies are mostly the same ones that are innovating and producing renewable energies, their investments will bring wider economic benefits through jobs, a secure supply chain and more progress towards net zero. Conversely, my noble friend Lord Leigh of Hurley voiced concerns about the impact of the EPL on independent UK companies and suggested that we use an approach more akin to the one that we have taken with electricity generators. His concerns are precisely why we have included such a generous investment allowance, which demonstrates our commitment to encouraging investment in the North Sea to strengthen the UK’s vital offshore oil and gas sector, putting more UK gas on the grid for longer and bolstering our energy security.

The noble Baroness, Lady Hayman, was also concerned about investment incentives for renewables under the electricity generators levy. The EGL is charged on a different basis from the energy profits levy and at a lower combined rate; the EPL is applied to total profits, whereas the EGL applies to only extraordinary returns above a given level. I reassure noble Lords that the electricity generators levy is designed in a way that maintains incentives for investment and preserves the effect of existing government support. Renewable generators will be able to deduct investment costs from their corporation tax.

[Lord Eatwell (Lab)]

I know that the Minister would not want to mislead the House, so I was very surprised by her figures on government investment. I looked up the OBR figures and, as a share of GDP, public sector net investment is now half what it was in the last year of the Labour Government.

[Baroness Penn (Con)]

My Lords, the statistics that I gave referred to overall levels of investment, not expressed as a percentage of GDP. I stand by the figures that I gave to the House.

Financial Services Bill

Debate between Baroness Penn and Lord Eatwell

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, this seems to be an entirely sensible modification of an overly restrictive time limit on prosecutions for market abuse, and the Minister has certainly made a strong case.

I have one question associated with the Government’s note that accompanied the amendment. The Government stated that they had not found any clear rationale for the five-year limit applying in EU law and could see no reason for maintaining it in UK law. They said they understood that it had also been raised as an issue by EU regulators and they were considering a change to their law. Given that the EU is also considering a change, why have the UK Government not co-ordinated the change in our law with theirs? Is it not the Government’s “go it alone” approach that has been so damaging in the quest for equivalence? Could the Minister outline how the Government’s current stance on this change fits with the Memoranda of Understanding on trade in financial services with the EU?

[Baroness Penn (Con)]

My Lords, I thank noble Lords for their remarks in support of the amendment. As I have said, I recognise that the amendment has been tabled at a late stage of the Bill and that it would have been preferable to have included it earlier. However, as it seems the House agrees it is important that the FCA is able to effectively pursue its investigations into potentially criminal conduct, it is right that we make this minor change to ensure that it can continue to effectively identify, investigate and prosecute complex cases of market abuse. I reassure the noble Baroness, Lady Kramer, that this will not be seen as an opportunity by the FCA to take its foot off the pedal in such cases, but where it is undertaking this work it is essential that it is able to continue if the case spans a period of longer than five years.

To the question asked by the noble Lord, Lord Eatwell, the Government are committed to co-operation with the EU but it is now responsible for its own law and is aware of this issue and we are responsible for ours. As I set out in my opening remarks, without action now in this Bill the time limit would come to bite in July this year, and there is therefore an urgency with which we need to act. While we will continue to co-operate with the EU, it is right that we take this opportunity to address what we view as an unnecessary restriction on the retention of data.

Financial Services Bill

Debate between Baroness Penn and Lord Eatwell

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

Debate between Baroness Penn and Lord Eatwell

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.

Financial Services Bill

Debate between Baroness Penn and Lord Eatwell

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Baroness Penn (Con)]

My Lords, I happily acknowledge that point. The point I was trying to make is that even with that slightly broader definition of the use of financial services, a “failure to prevent” offence for broader economic crime is one that people would want to apply in a broader context. I appreciate that the scope of the Bill defines how amendments may be written, and that takes me back to one of the reasons that my noble and learned friend Lord Garnier predicted I might give for resisting this amendment: that this is not the right Bill for it.

[Lord Eatwell (Lab)]

My Lords, this debate has evidenced considerable concern from all sides of the Grand Committee at the level of financial crime and the apparent inability to tackle it in this country in a consistent manner. I am afraid that the Minister’s reply did not provide any reassurance. Indeed, there seemed to be an enormous amount of long grass in evidence into which various reviews and considerations were being kicked.

Before commenting on the Minister’s reply to my amendment, I shall comment on the amendment by the noble Lord, Lord Holmes, on KYC. I entirely sympathise with his point about a modernised means of identification, but I am afraid he will come up against what seems to be a most peculiar British national aversion to any comprehensive means of identification. Therefore in KYC we rely on documents such as utility bills that were never designed for this purpose. The debate over a vaccine passport is running into the same national aversion. However, I wish him well because he is on the right track in what he is attempting to do.

I was also enormously impressed by the amendments in the name of and the speech made by the noble and learned Lord, Lord Garnier. I cannot understand why the notion of failure to prevent, which he described so clearly that even a non-lawyer such as myself could understand it, can apply to bribery and tax evasion but not to other financial crimes. The Minister did not really address that lacuna in her reply.

Turning to my two amendments, first, the UK’s approach to measures against financial crime is underresourced, scatter-gun and generally ill directed. The evidence is clear in the extraordinarily low number of prosecutions. I therefore feel that there is an urgent need for a major reconsideration of this matter. I hope that the review referred to by the Minister, to be conducted by Her Majesty’s Treasury and the FCA, will produce something concrete and effective—for a change, I must say.

On beneficial ownership, I was amused by the point made by the Minister that, because of the peculiar structure of my amendment, I was somehow letting the private sector off the hook. That was not my intention, of course; it was about the necessity of getting the argument in the Bill. However, I was really disappointed to hear her repeat the discredited support for Britain’s so-called wonderful public beneficial ownership open register. This public register is inaccurate, misleading and shelters criminals, and I am surprised that she is so enthusiastic in her support for it. I hope that the committee that scrutinises financial matters, which we discussed earlier in this Committee, will be able to keep an eye on developments in the prosecution of financial crime and the provision of a proper, verified beneficial ownership register. I hope that it will push these matters forward and not let them disappear into further reviews.

In the meantime, I beg leave to withdraw Amendment 49.

Financial Services Bill

Debate between Baroness Penn and Lord Eatwell

Committee stage
Monday 1st March 2021 Grand Committee

[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.

Financial Services Bill

Debate between Baroness Penn and Lord Eatwell

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.