Financial Services and Markets Bill

Baroness Twycross Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I will speak to Amendment 55. I broadly support the other amendments on financial inclusion and will perhaps say a bit more about that aspect when discussing the amendments in later groups. I thank the noble Lord, Lord Moylan, for explaining many of the points on which I had questions about his amendment, although I am still unclear what is covered by the term “regulated investments”. I do not think it is defined in the legislation, so perhaps it could be clarified.

I want to add a note of caution. I am not against the idea—obviously, it is motherhood and apple pie, and we are all in favour—but our old friend shareholder democracy is coming up again, and we should recognise that it has a political subtext. The truth is that, unfortunately, that ship has sailed, the bus has left the stop and it has gone the other way. Quite rightly, reference was made to our old friend Sid: the “Tell Sid” campaign was a masterpiece of promoting a policy that has had a lasting legacy, but that legacy has not been greater share ownership—greater ownership of regulated investments. In fact, we have seen the reverse, as the noble Lord mentioned in his introductory remarks. The whole thing has gone into reverse such that now, according to the ONS, only 12% by value of UK shares, for example, are owned by individuals, with the majority of shares owned by overseas entities. It is true that other shares are owned through other bodies, such as pension funds and unit trusts, but, in total, that is less than 10%, which I do not believe provides the individual holders with any sense of ownership.

There are many reasons for the shift away from individual ownership, and I think the attitude of the regulator is only a very minor part of it. In a sense, the objectives set out in the amendment have been overwhelmed by bigger forces. There are many reasons why people do not have individual ownership; many people are too poor and simply do not have the money. Even those who have some money in savings—this is a bit of a caricature—have it for rainy days. Regulated investments are not necessarily, depending on the definition, the best place to put your rainy day money.

My concern is the extent to which this amendment suggests it is advisable for people to use their money in this way. It would be very unfortunate and of great concern—perhaps the noble Lord can give me an assurance on this—if the regulatory bodies by implication were providing investment advice. I certainly do not think investment advice belongs in an Act of Parliament.

[Baroness Twycross (Lab)]

My Lords, I declare an interest as London’s Deputy Mayor for Fire and Resilience, as risks associated with access to cash were noted as a risk to financial inclusion in the London City Resilience Strategy published in 2020.

I am grateful to my noble friend Lord Tunnicliffe and the noble Baroness, Lady Tyler, for allowing me to add my name to their excellent Amendment 117 on financial inclusion. I will speak particularly on digital inclusion. The other signatories have already outlined in much better words than I could why this amendment is required. This amendment would ensure that the heart of this legislation takes account of the needs of the most vulnerable and that we have the opportunity to mitigate the risk that a significant minority of the population may be unwittingly left behind or excluded from crucial financial services. This amendment would be an important addition to the legislation. I agree with my noble friend Lord Tunnicliffe that this is not party political. It is a really sensible and pragmatic measure which should afford significant protection.

On financial inclusion, I ask noble Lords to note specific issues of digital inclusion. This relates to financial inclusion as, without access to a smartphone or computer, it is almost impossible to carry out online banking or transfer money to a family member or a business.

I apologise for using a string of statistics, but beneath them there is a significant minority of the population whose stories and suffering because of financial exclusion often get missed. These people may be unable to access basic banking services online, relying heavily on cash or even cheques, and may struggle to pay for very basic things we all take for granted—for instance, automated parking.

Latest figures from the ONS estimated that, in January to February 2020, 96% of households in Great Britain had internet access. This increased from 93% the year before and 57% in 2006, when comparable records began. Although this number is increasing, and statistically it looks as if there is not a huge number of people without internet access, in the same period 76% of adults were using online banking. This leaves a significant minority who still do not. Estimates suggest that over 7 million adults in the UK—around 14%—could be classed as potentially financially excluded, with around 5.8 million having no record of an open or closed bank account. There are well over 600,000 people who could be classed as credit invisible, with the issues that causes for affordable credit.

Digital exclusion’s effects fall disproportionately, and research by the Centre for Social Justice has found that digital exclusion is significantly higher among those on the lowest incomes. It has a disproportionate impact on those who can least afford it. A fifth of adults with a household income below £15,000 are digitally excluded, compared to just 1% of those with an income of £50,000 or more. In turn, this adds to the poverty premium they already pay, as they cannot access the best prices or deals. This poverty premium, which has already been mentioned in this debate, includes borrowing and other financial services, so the proposed duty to be placed on the FCA would ensure that it, as well as the Government and the banking sector, can act to mitigate the risks posed by increasing digitalisation of the sector.

I note that technology often moves faster than we can imagine, Covid changed behaviours that now cannot be unchanged, and any duties imposed on the FCA in relation to financial exclusion will need to assume that the discussion about cash versus card that we are currently having will move to card versus phone, as well as include other technological approaches. Ensuring that the FCA has oversight over that would provide additional protection for the most vulnerable in our society, and I hope the Minister sees the merit of safeguarding which this amendment would provide and agree to include it in the Bill.

[Baroness Kramer (LD)]

I shall combine speaking as a winding speaker with addressing the amendment that sits in my name. I added my name to the two amendments from the noble Lord, Lord Moylan, Amendments 55 and 241. Like him, I am very conscious of many of the recent scandals we have seen—he mentioned London Capital & Finance, but there is also Blackmore Bond and mini-bonds, to mention just two of the most recent. They were fuelled by ordinary investors looking for improved returns. I would hope that with easier access to regulated markets, which typically come with information and analysis by independent entities such as the rating agencies, an investor would be far less likely to fall into unscrupulous hands. That is a consequence that neither the regulator nor the Government have been fully aware of. They are always surprised when an unscrupulous product appears, and they should not, given the general track record.

I also join the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Tyler, in their amendments to insert at least “have regard” for financial inclusion and for proper reporting on financial inclusion. I also support Amendment 67A, in the name of the noble Lord, Lord Holmes, to turn that into an objective.

My biggest gripe with the FCA on the financial inclusion agenda is that it is passive. If a new product or organisation were to come forward serving part or all of that community, it would of course appropriately regulate it. The problem is that it does not use its incredibly powerful and influential role as a regulator to spearhead the actual change—to pick up the words of the noble Lord, Lord Holmes. It does not, for example, ask the competition to come up with a product or even look at mechanisms such as bank in a box, which is very popular across the globe. That makes it very easy for new entities to come to market, because the whole core regulatory piece comes off the shelf. That changes the dynamic dramatically. It does not take the initiative and, until it does, I can see that no one else will.

All of that in a sense leads me to my Amendment 228. Others have talked about the intractable problem of financial inclusion, and I suspect that many in this Room, like me, have been to round table after round table, meeting after meeting, conference after conference, with banks, credit unions, mutuals, fintechs and civil society groups to hear proposals for cracking the financial inclusion problem. Year after year, it is the same conversation, with relatively little headway. Others may correct me, but the number I have is that we still have 1.2 million people without a bank or credit union account, and in modern society that means that you simply cannot function.

I have huge respect for credit unions; I am delighted that there are amendments to support them and mutuals in the Bill. However, only 1.4 million people in the UK actually use them. That is a fraction of those who could benefit. Other forms of community development financial institutions are scattered, tend to be small and have limited scope. Local and community banks, as well as the old savings and loans, have largely been absorbed by the high street banks. In turn, as others have said, they have rapidly closed branches and anyway rely on a centralised system of decision-making that does little for local businesses or circumstances; we saw that graphically after the 2007 crash. There is a regional mutual bank movement—the noble Lord, Lord Holmes, addressed this in our debate on a previous set of amendments—that is trying to build, but the lack of capital is a major hurdle. Again, my noble friend Lady Tyler referred to the banking hub scheme driven by the access to cash task force, but it is growing exceedingly slowly.