Financial Services and Markets Bill

Debate between Baroness Tyler of Enfield and Lord Sikka

Committee stage
Monday 6th February 2023 Grand Committee

[Baroness Tyler of Enfield (LD)]

I support Amendment 76 in the name of my noble friend Lord Sharkey, to which my name is attached. I will say briefly that I support Amendment 77, which we have just heard set out very persuasively by the noble Lord, Lord Davies of Brixton. The links between money problems and mental health are now very well established. They were covered in some detail by the 2017 Lords Select Committee on Financial Exclusion, which I have already referred to. We had a number of recommendations in this area. Five years on, the case is stronger than ever. I hope the Minister will be able to respond sympathetically to that point.

Turning to the duty of care to replace the consumer duty—indeed, having a duty of care was another of the Select Committee’s recommendations—I concur with the sentiments expressed by my noble friend Lord Sharkey. A consumer duty of the sort in the Bill and which was brought forward for consultation by the FCA is not a duty of care. The former has many exemptions and, critically, does not provide wronged consumers with the right to secure monetary redress through litigation. This point was made very compellingly by my noble friend. While the purpose of the consumer duty is to deliver improved outcomes for consumers, because the proposals are diluted from the duty of care—which was voted on in Parliament and enshrined in the Financial Services Act 2021—we have to ask why this has happened.

The external bodies calling for a duty of care, the financial services Consumer Panel, many consumer organisations and the House of Lords Liaison Committee were all clear that what they wanted was a duty of care, not a consumer duty. I would be grateful to the Minister if in summing up she can explain why this move from a duty of care to a consumer duty was made and why it was allowed to happen. In terms of accountability and parliamentary sovereignty it is of real concern that, after Parliament passed the Financial Services Act 2021, the regulator chose to consult and bring forward rules on something different. This amendment provides an opportunity to remedy a very unsatisfactory state of affairs.

In my view, the consumer duty provides little more consumer protection than is in the existing “treating customers fairly” principle. Nor do these proposals really help to rebalance the power and information imbalance between financial services providers and vulnerable customers, which is a real concern of mine. We need a convincing explanation of how the consumer duty enhances the “treating customers fairly” principle and how this new approach will provide the regulator with more of an ability to ensure better outcomes for consumers than at present. I must say that is not at all clear to me.

Finally, the problem is that, as currently drafted, the consumer duty places the responsibility on consumers to understand the benefits and risks of different products and services. There needs to be less emphasis on what consumers should be able to discern for themselves and more emphasis on what should be in place to stop firms exploiting that power and information imbalance between themselves and customers. This is something that a duty of care amendment would do.

[Lord Sikka (Lab)]

My Lords, I will speak to Amendments 229 to 231. They overlap with the amendments tabled by the noble Lord, Lord Sharkey; I congratulate him on his excellent speech and the wonderful case that he made for a duty of care.

The key theme of these three amendments is the empowerment of consumers—that is, enabling consumers to secure redress from negligent authorised persons for failure to act with due care as well as enabling them to seek compensation from regulatory bodies for their failures. Empowering consumers generates pressure points for regulatory bodies and authorised persons to ensure that they act diligently, efficiently, honestly, fairly and with some care.

The key element in these amendments is a duty of care, about which the noble Lord, Lord Sharkey, has already said a few things; I will add just a few more. The FCA has failed to carry out the mandate given to it by Section 29 of the Financial Services Act 2021. The consultation was fundamentally flawed; indeed, the wording of its questions indicated the bias against its mandate to create a duty of care.

I have time to go through only one example. Question 12 on the consultation paper was very badly designed. As an academic, I have carried out many questionnaires over the years, but I have never written a question like this with so many questions in one:

“Do you agree that what we have proposed amounts to a duty of care? If not, what further measures would be needed? Do you think it should be labelled as a duty of care, and might there be upsides or downsides in doing so?”


That is supposed to be one question. This question and the accompanying information provided in the consultation paper are severely misleading. The FCA asks, “Do you agree that what we have proposed amounts to a duty of care?” Does it not know what a duty of care is? Has nobody there ever studied any English case law from the 20th century to understand what it is? What a strange question to ask.

First, it was not for the respondents to inform the FCA whether or not it had proposed a duty of care; that was for the FCA itself to do. Secondly, if it is not a duty of care but the majority of respondents believe it to be one, does that make it so? Thirdly, if it is a duty of care but the majority of respondents believe it not to be, does that mean it is not one? It is very strange. Fourthly, if it is a duty of care then the FCA has proposed such a duty without asking the question, specifically mandated by Section 29 of the 2021 Act, as to whether there should be one. Fifthly, if it is not a duty of care then the FCA has proposed that there should not be one. If you look at it on logical grounds, none of it makes any sense. The questions and the accompanying statements do not make any sense, so the FCA has not really consulted on a duty of care.

The FCA’s consultation paper says that a duty of care “may have different meanings”—in other words, that is why it did not really want to go down that route. That is misleading. Just because the meaning of duty of care evolves does not mean that the FCA should not carry out its statutory duties. The principle of duty of care is well established in English law, especially since the 1932 case of Donoghue v Stevenson. It is found in fields as diverse as sale of goods and professional negligence, but it seems to have eluded the FCA.

The FCA has failed to create a duty of care as that phrase is commonly understood in law. What it has done is propose general rules about the level of care that must be provided to consumers by authorised persons. That is not a duty of care. Principle 2 of the FCA’s handbook does not create a duty of care because a breach of the FCA’s Principles for Businesses does not give rise to a right of private action by parties injured by a breach thereof. That has already been commented on; unless consumers can enforce something, it is not really a duty of care.

The FCA’s chair, Charles Randell, rejects the commonly accepted legal definition of the term “duty of care” and states that, for the FCA, it means nothing more than

“a positive obligation on a person to ensure that their conduct meets a set standard.”

That does not sound like a duty of care. Randell further commented in relation to the consultation paper that

“whether or not a private right of action for damages should attach to the duty … there would be alternative ways of enforcing such a duty. These include not only voluntary redress or a restitution order, but also our routine supervision and enforcement activities. And individuals have the ability to seek compensation by referring complaints to the Financial Ombudsman Service, which would have regard to the duty in its decisions.”

In a sense, I have no problem with regulatory remedies being in place in addition to the private right of action—I welcome them—but they cannot be a substitute for that right, which is what Amendment 229 calls for. There are two reasons for rejecting the FCA’s position. First, elsewhere—for example, in the sale of goods or professional negligence—a breach of a duty of care is by definition actionable, so why is that prevented in the world of finance? Why are the financial services and the FCA an exception to it? Secondly, the alternatives listed by Randell and the FCA have consistently been shown to be unsatisfactory. Individuals are therefore left in the lurch with nowhere to go.

A right of private action is desirable and creates a pressure point for financial services providers. While the consumer duty has many exclusions and qualifications I do not welcome, attaching a private right of action to it would materially strengthen consumers’ rights in relation to wrong scores and be of benefit to consumers. A right of private action would enable consumers to seek redress and compensation in the event that they are dealt with badly by a financial company. In the absence of that right, consumers, investors and pension savers remain dependent on the FCA. As we have already heard, the FCA is always dragging its feet to do anything. We need to set consumers free. In essence, I am supporting what the noble Lord, Lord Sharkey, said.