Financial Services Bill

Debate between Earl Howe and Baroness Kramer

Consideration of Commons amendments
Wednesday 28th April 2021 Lords Chamber

[Earl Howe (Con)]

My Lords, this Financial Services Bill will enhance the UK’s world-leading prudential standards, promote financial stability, promote openness between the UK and international markets, and maintain an effective financial services regulatory framework and sound capital markets. I acknowledge the work of your Lordships in scrutinising this important Bill. The issue of parliamentary scrutiny has been prominent in our debates and noble Lords have more than demonstrated the positive role that they can play in this regard.

During the passage of the Bill, Members of both Houses debated how best to address issues of consumer harm in the financial sector. Amendment 1, which this House approved on Report, proposes that this should be addressed through a requirement for the FCA to bring forward rules on a duty of care. Let me underline that 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. However, as the Economic Secretary set out in the other place, the Government believe that the FCA already has the necessary powers and is acting to ensure that sufficient protections are in place for consumers, so I cannot accept this amendment.

It is important to remember that financial services firms’ treatment of their customers is already governed by the FCA’s Principles for Businesses and specific requirements in its handbook. These fundamental principles set out specific requirements for firms, including that

“A firm must pay due regard to the interests of its customers and treat them fairly.”


The FCA’s enforcement powers allow it to ensure that these standards are met, but it recognises that the level of harm in markets is still too high. It is committed to taking further actions.

The Government accept, as the noble Lord, Lord Tunnicliffe, has rightly suggested, that this harm may stem from asymmetry of information between financial services firms and their customers. The risk is that some firms may seek to exploit this asymmetry. The FCA is well aware of how informational asymmetries and behavioural biases can influence consumer behaviour, and it works every day to address these issues where it considers that they may result in harm. The Government therefore support the FCA’s ongoing programme of work in this area and believe that it will deliver meaningful change for the benefit of consumers.

The FCA has considered its existing framework of principles and whether the way in which firms has responded to them is sufficient to ensure that consumers have the right protections and get the right outcomes. Building on this, in May, the FCA will consult on clear proposals to raise and clarify its expectations of firms’ actions and behaviours and on any necessary changes to its principles to deliver them. These proposals will consider how to raise the level of care that firms must provide to consumers, through a duty of care or other provisions. Ultimately, the proposals in this consultation seek to ensure that consumers benefit from a better level of care from financial services firms.

Amendment 1A puts this work on a statutory footing. It requires the FCA to consult on whether it should make rules providing that authorised persons owe a duty of care to consumers. It ensures that the FCA will publish its analysis of the responses to this consultation by the end of the year. It also ensures that the FCA will make final rules, following that consultation, before 1 August 2022. I hope that this provides reassurance of both the FCA’s and the Government’s commitment to this important agenda. I urge the House to accept this proportionate and, I believe, well-judged amendment.

The FCA will bring its consultation to the attention of the relevant parliamentary committees. This will give them an opportunity to consider the proposals and, if they choose, to express a view or raise any issues. The FCA will respond to any issues raised by parliamentary committees, in line with commitments made during the passage of this Bill.

Let me end there. I hope that noble Lords will accept Motion A and this amendment in lieu.

[Baroness Kramer (LD)]

My Lords, we will not challenge this Motion. I cannot say that it goes as far as reassurance, but I think we are in a much better place to have the consultation and its characteristics in statute on the face of the Bill. I particularly thank the Minister and his team. I suspect they have been instrumental in making sure that the concerns, from all sides of the House, were communicated back to the Treasury and the Treasury team.

The Minister today repeated a number of the statements that the Economic Secretary made in the other place when he addressed this issue. I will highlight a few that were of particular importance to me. The FCA recognises that,

“the level of harm in markets is still too high and is committed to—”—[Official Report, 24/4/21; col. 867]

taking further actions. That is an important statement to have on the record. I am slightly concerned, however, that the focus of the FCA should not exclusively be on asymmetry of information. Asymmetry of information is fundamental and important, but it is far from everything. The Economic Secretary said that

“the FCA will consult in May on clear proposals to raise and clarify its expectations of firms’ actions and behaviours, and on any necessary changes to its principles to deliver this.”—[Official Report, Commons, 26/4/21; col. 84]

I hope that will not be confined simply to asymmetry of information, but as the Economic Secretary said, and the Minister today said, Parliament wants to be assured that the FCA’s ongoing work will lead to meaningful change. I think that reflects some of the frustrations expressed in this House of having had eight consultations to date and relatively little action. I hope this will lead to a great change.

In the amendment in lieu—this is perhaps something the noble Lord, Lord Eatwell will address more extensively than I—the fact that all consumers are part of the consideration is an important one. I want to use this opportunity to underscore to the Minister how urgent and significant this issue is.

When the Government’s amendment in lieu was passed, I got an email from one of the leading financial services lawyers in the country, and two things are pertinent. It said that it looks like this one is headed for the long grass again. I think that is partly because we are looking at action in 2022 and not immediately. The reason for that level of concern was, apparently, that audit firms are now saying that any credit risk between the client and the authorised firm should be counted as client money within the meaning of CASS—the protection of client assets and money. This is storing up some big problems when one of these babies—we are talking about firms that collectively have well over £10 trillion in assets under management—goes down and a judge finds that the trust is bust because they comingled client money with money that is not. Lehman Brothers, here we go again. I went immediately to the FCA site, and it is an excellent but sad example of the very limited powers that the FCA has to deal with such situations, because of the regulatory perimeter that limits a great deal of their potential for action to their definition of consumers. The issue has always been that that is a very narrow definition of consumer.

Every day we wait for a duty of care to become embedded in the system, we run significant risk. It is a risk that none of us wants—it has the potential to be limited to a small pool of clients, but also to knock the economy off its paces once again. It is important that there is an element of urgency built into all of this, that the issue is taken seriously and that there is not an attempt to narrow examination by and the focus of the FCA to simply something like asymmetry of information, but to consider the much wider picture before we end up with another crisis none of us wants.

Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015

Debate between Earl Howe and Baroness Kramer

Monday 26th October 2015 Lords Chamber

[Earl Howe]

Well, it is an important point to factor in because the creation of and rises in the national living wage will affect not just those on tax credits, but many millions of others paid above that level, in the so-called ripple effect that has been widely discussed.

[Baroness Kramer]

My Lords, for clarification, will the Minister focus on the two out of 10 whom he says are losers and tell us how many people those are? How many children are in those families and what is their loss likely to be? We are talking about something close on 1 million people, largely families with children. I think that he will be able to confirm that they are in the lowest deciles of the population in terms of poverty.

[Earl Howe]

Let me address that. It has been said by some noble Lords, and the noble Baroness’s question implies it, that the brunt of these savings will be borne by those on tax credits who are relatively worse off. That is not the case. The 10% of tax credit claimants on the highest incomes—incidentally, those on £42,000 on average—contribute nearly four times as much to the savings that we are proposing as the poorest claimants. That is an important point to factor in. The problem with talking about those at the lower end of the scale is that everyone’s circumstances are different. Some people have children and some do not. Some have a disability and some do not. Some work shorter hours, some work longer hours. It is very difficult to particularise.

I can say that the cut in public spending that we propose through this regulation is one that will take us back not to some far-distant point in the past, but to the levels of spending seen in 2007-08 before the financial crash. I am talking of course about the spending position in its totality. One cannot particularise, as I said, to an individual case because people’s circumstances will be different.