Financial Services and Markets Bill

Debate between Baroness Penn and Lord Flight

Committee stage
Monday 6th February 2023 Grand Committee

[Baroness Penn (Con)]

I have heard the point and I acknowledge the principle that this amendment seeks to explore in terms of those incentives, but I point to the NCA’s budget and the regulators’ budgets. We seek to ensure that enforcement agencies have the proper money available to them to take enforcement activity. I also point out that, while the funds currently go into general expenditure, that funding is spent on other public services, so it does not go unspent elsewhere.

[Lord Flight (Con)]

This point seems absolutely central to me. Unless police forces have either a strong negative or a strong positive incentive, they are not going to be bothered, if you like, to prosecute serious fraud crime. I do not know what the Government’s preference is, but it has to be one way or the other.

[Baroness Penn (Con)]

I have listened very carefully to the debate, and I see the point that noble Lords are making. This operates in other areas of government—there is the Proceeds of Crime Act and how that operates—but I slightly counter leaning too heavily into the fact that the police would have no incentive to investigate serious organised crime unless the costs of the investigation and the prosecution are reimbursed to them. Their fundamental role is to investigate and prosecute crime. I understand that there is a complex landscape when it comes to investigating and prosecuting fraud, and that is something that the Government have tried to tackle with the establishment of the economic crime command at the NCA—but it is ongoing work for us. The challenge before me today is that the funding that comes from these fines currently goes to the consolidated fund and is spent elsewhere on public services, so any change of this nature would have implications that go—

--- Later in debate ---

[Baroness Kramer (LD)]

I think the Minister said that the legislation, as it finally went through, gave the FCA the option of either a duty of care or something else. Did that imply that it could be much weaker than a duty of care—and did anybody signing up to it understand that?—or was there a sense that it might be done in a different way but would be equally as strong and effective as a duty of care?

[Lord Flight (Con)]

The other fundamental point is that it is not the law; it is a sort of quasi-law that does not have the same power as law.

[Baroness Penn (Con)]

If I may, I will come on to address the noble Baroness’s point and the questions from the noble Baroness, Lady Tyler, on why the FCA took the approach it did in selecting the consumer duty approach rather than a duty of care. It is the FCA’s view that it provides not a weaker response but a stronger one; I will set that out in more detail.

The consumer duty sets a higher and clearer standard of care that firms owe their customers than now, and includes a new principle requiring firms to act to deliver good outcomes for customers. It is a package of measures comprising an overarching principle, cross-cutting rules and four “outcome rules”. It is also accompanied by extensive guidance, as noble Lords have noted, to provide clarity for firms on what is expected from them.

The FCA developed the consumer duty following extensive consultation with a wide range of stakeholders, including consumer representatives. Noble Lords may be aware that, in its consumer duty consultations, the FCA specifically sought views on whether the new principle should instead require firms to act in customers’ best interests. On balance, the FCA concluded that requiring firms to act to deliver “good outcomes” was the most appropriate approach. The FCA explained that “good outcomes” best reflects the outcomes-focused nature of the consumer duty and underlines that firms should not focus simply on processes but on the impact of their actions on consumers. The FCA also noted concerns raised by some stakeholders that “best interests” language could be confused with a fiduciary duty or a policy that required the best outcome to be achieved for each consumer, potentially resulting in unintended consequences concerning the availability of products and services to some consumers.

I hope noble Lords are therefore assured that the FCA carefully considered the wording of its consumer duty in the manner proposed by Amendment 76 and concluded that a different approach would deliver better outcomes. As the UK’s independent conduct regulator for financial services, it is responsible for developing its rules independently of the Government.

The noble Baroness, Lady Kramer, asked about the potential for the consumer duty to operate in the context of past problems. She highlighted the mis-selling of PPI and interest rate hedging products. As I said, the consumer duty sets clearer and higher standards for firms to follow, and that means clearer and higher standards for the FCA to supervise and enforce, which will enable the FCA to act more quickly and assertively where it identifies poor practice. However, within this system, even the best regulators doing everything right will not be able to, and cannot be expected to, ensure a zero-failure regime.

In respect of the two specific cases of PPI and interest rate hedging products, the Government have always been clear that mis-selling financial products is unacceptable. That is why we supported unequivocally the FCA’s work on PPI to ensure that consumers who were mis-sold PPI receive appropriate redress, and the review process into the mis-selling of interest rate hedging products, which saw over £2.2 billion of redress being paid out to almost 14,000 businesses.

Financial Inclusion in England

Debate between Baroness Penn and Lord Flight

Wednesday 30th November 2022 Lords Chamber

[Baroness Penn (Con)]

The noble Lord is right to point to the range of Bills before Parliament that will address this issue. We will not be able to address fraud and scams through financial services regulation alone. For example, many fraudsters access people through online platforms, so we need to look at that approach too. Those Bills will contain measures to tackle this, and the Government are also committed to bringing forward a fraud strategy that will bring together work from regulators, government and law enforcement to get a grip on this issue.

[Lord Flight (Con)]

My Lords, financial involvement is important because it represents people being willing to invest in British businesses and help them to grow. Unfortunately, the volume of direct citizen investment has fallen rather than increased in recent years. I am afraid that the increase in dividend tax and other investment expenses will also discourage this. Can the Government think about methods of encouraging people to invest in this country?

[Baroness Penn (Con)]

We absolutely want citizens to invest more and we have products, for example to help those on lower incomes form saving habits. We also want institutional investors to invest more in this country, which is why we are taking action on things such as Solvency II.

Crypto Asset Technology

Debate between Baroness Penn and Lord Flight

Thursday 21st July 2022 Lords Chamber

[Baroness Penn (Con)]

I would like to reassure my noble friend that we are taking a staged and proportionate approach to crypto asset regulation that is sensitive to the risks posed but also responsive to new developments in the market. I have referred to a number of areas in which we have already regulated for crypto assets, and in the forthcoming Financial Services and Markets Bill we will legislate to regulate stablecoins. Later this year, we will also consult on the wider regulation of the sector. I absolutely agree with him about the opportunities this market can provide for the UK economy.

[Lord Flight (Con)]

My Lords, if the cryptocurrency market got so huge that it posed a major credit threat, would the Government consider introducing some form of regulation?

[Baroness Penn (Con)]

The Government are considering some form of regulation; that is why we are consulting on it later this year. My noble friend is absolutely right that financial stability is one consideration that we have to bear in mind when looking at this market.

Money Laundering Regulations: Politically Exposed Persons

Debate between Baroness Penn and Lord Flight

Tuesday 5th July 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, the United Kingdom Government are always happy to advocate for a risk-based approach in regulating financial services and will continue to do so. The noble Baroness and other noble Lords will know that the obligations around politically exposed persons derive from international obligations from the Financial Action Task Force, so it is important that we continue to meet those standards and obligations internationally.

[Lord Flight (Con)]

My Lords, I believe that contributions this afternoon have shown how the vast majority of people are fed up with anti-money laundering regulations, which burn up a lot of effort and money to no purpose. However, far worse than that is the idea of politically exposed persons. I wonder how many noble Lords today have had a difficult time opening bank accounts and other such matters. I hope to see reform, particularly following the recent review, which should start with simplifying the idea of politically exposed persons.

[Baroness Penn (Con)]

My Lords, anti-money regulations play an important role in tackling economic crime, which I know is a subject that this House cares strongly about. We recently concluded a review of our anti-money laundering regulations and their effectiveness. We are committed to a piece of work on politically exposed persons, but the main conclusions from that review were about how we regulate professional services, and we will consult on our proposals for reform there to consider how we can improve our anti-money laundering regulations. I think everyone would agree that they are essential to protect against financial crime.

Enterprise Investment Schemes

Debate between Baroness Penn and Lord Flight

Thursday 3rd February 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, the Government are committed to ensuring that any state support they deliver is done in a fair and appropriate way. In saying that, we keep all our schemes under review to ensure that they are doing that. We will always do that in a fair way.

[Lord Flight (Con)]

My Lords, I declare an interest as chairman of the EIS Association. I entirely support the issue raised by my noble friend Lord Leigh. There are two particular restrictions on eligibility that serve no purpose but are there as a result of the EU requiring them. One is the sunset clause, which effectively means that, if it is not changed, EIS will come to an end in 2025. The second is the seven-year rule, which serves no purpose other than adding to legal costs. I echo my noble friend’s request for a meeting to discuss these matters. I just want to make the point that EIS has now raised nearly £30 billion for small companies, and has been thoroughly successful and much better than the systems in other countries.

[Baroness Penn (Con)]

My noble friend is correct about the success of the EIS scheme in terms of the amount of money raised. It is world-leading in that fact and has managed to do that under its current design. However, as I have said, I will take my noble friend’s request for a meeting back; we are always looking at what more we can do.

Elderly Social Care (Insurance) Bill [HL]

Debate between Baroness Penn and Lord Flight

2nd reading
Friday 16th July 2021 Lords Chamber

[Lord Flight (Con)]

My Lords, I, too, congratulate the noble Lord, Lord Lilley, on his Bill and on addressing territory that Governments should have addressed long before now. I agreed very much with my noble friend Lady Altmann’s speech.

The noble Lord, Lord Lilley, argued that social care provides two competing challenges to government. The first is the increased pressure on local social care budgets that comes with an ageing population, the increases in the national living wage and the risk of care homes closing. The second is resentment from homeowners and their relatives who risk having to sell their homes to pay for social care. He advises that both problems could cost billions to solve and that, where there is more placating of homeowners, less finance will be available to provide decent care for those in greatest need.

Under the Bill, a state-owned insurance company would be set up and guaranteed by the state. The cost of insurance would be calculated to be actuarially sufficient to pay for all the care. If they wished, people would be able to pay for the insurance via a charge on their homes, which would be realised when they died. That charge would typically be a modest fraction of the value of any home and nobody would be required to take out such insurance. Based on updated figures and the calculations from the Dilnot commission, the noble Lord, Lord Lilley, calculated that a theoretical premium would be approximately £16,000 and the average cost to social care, supported by local authorities, would be £25,000, as he said. I question whether the noble Lord’s insurance premium of £16,000 per annum will be sufficient.

The Bill does not address the point that there is a perceived unfairness, with those who have worked hard and saved having to pay their care costs while those who have spent all their incomes get their social care costs paid for. Those people should arguably get state-provided care, which would be of a more basic nature than the care that individuals purchase. The main objective of the noble Lord, Lord Lilley, is to weaken the political pressure from homeowners for the state to provide them with free social care, but his arrangements entail the state insurance body realising its charge on a property on the death of the insured person or the sale of that property—the charge being the fraction, set aside at the time of the purchase of the policy, of the value of the property at the time of death, net of mortgage.

The terms of the Bill do not therefore fully avoid the much-disliked arrangement of the public sector taking value from a deceased citizen’s property, even though it would be much less under the noble Lord’s system. The insurance arrangement would operate such that the insured persons would be entitled to social care from their local authority, which would be reimbursed for the cost of the care provided. The weakness here is that there is no incentive for the local authority to keep the care costs as low as possible.

The proposals of the noble Lord, Lord Lilley, are complicated and do not—

[Baroness Penn (Con)]

I must remind the noble Lord of the advisory Back-Bench time limit for this debate.

[Lord Flight (Con)]

They do not include the cost of care homes. In my view, what is needed is a less complicated and more standardised approach.

Covid-19: Hospital Patient Referrals

Debate between Baroness Penn and Lord Flight

Monday 28th June 2021 Lords Chamber

[Baroness Penn (Con)]

My Lords, prior to the publication of the Government’s hospital discharge service requirements on 19 March last year, engagement was sought from, for example, NHS England, Public Health England, Care England and the Local Government Association—I could go on. I am not sure about the practicalities of everything that the noble Lord requested, but I reassure him that proper engagement has been undertaken with the sector throughout the pandemic.

[Lord Flight (Con)]

My Lords, I think that this Question is asking what proportion of those referred to residential accommodation were tested for Covid-19 and, therefore, what proportion were not. The Question is not asking what proportion of those tested were positive and negative—and testing should be required of all care home staff. When hospital discharge guidance was released on 19 March, why was there no requirement to test people for Covid-19 before release and, if positive, to segregate them from those testing negative? However, 30% of those tested for Covid-19 while in hospital did not receive their results when they left. This was particularly problematic for care homes, given the transmission risk. Why did 30% of those tested while in hospital not receive their test results before they left?

[Baroness Penn (Con)]

My Lords, my noble friend has asked a number of questions. The policy shifted post 15 April and that was based on our understanding of asymptomatic transmission. It was also based on the availability of testing capacity at the time. Prior to that date, those who were symptomatic were tested and every effort was made to ensure that those results were also passed on to the care homes so that they could take the appropriate action needed.

Interest Rates

Debate between Baroness Penn and Lord Flight

Wednesday 23rd September 2020 Lords Chamber

[Baroness Penn (Con)]

In effect, customers’ deposits with NS&I are a form of government borrowing and could be interpreted in that way. The increase in the financing remit for NS&I has allowed it to offer those products to many more people without exceeding that remit. However, we have reached a difficult moment whereby it is on track to grossly exceed that remit if action is not taken. However, the Government want to encourage savings and that is why, over recent years, we have taken the vast majority of savers out of paying tax on their savings. We will of course continue to look at what more we can do.

[Lord Flight (Con)]

My Lords, surely NS&I interest rates should roughly reflect market rates for different amounts and terms if government policy is to offer a modest premium over market rates to encourage saving. The proposed cuts look to take NS&I rates below market rates. They are too large and will damage saving. Is wanting to inspire a stronger savings culture still government policy?

[Baroness Penn (Con)]

I assure my noble friend that that is still government policy, but I disagree with him on the fact that the changes to NS&I’s interest rates take it below competitive rates in the market. As I have pointed out, on premium bonds, a 1% prize fund rate is extremely competitive while on a number of other tax-free instant access products, the rates remain in line with the rest of the market.