Banks: Closures and Shared Banking Hubs

Lord Holmes of Richmond Excerpts

Thursday 27th April 2023 Lords Chamber

Asked by

[Lord Holmes of Richmond]

To ask His Majesty’s Government how many (1) bank branches have closed, and (2) shared banking hubs have opened, in the last 12 months; and what steps they are taking to minimise the former and speed up the latter.

[Lord Holmes of Richmond (Con)]

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my financial services interests as set out in the register.

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

My Lords, the Government do not make assessments of bank branch networks or intervene in commercial decisions to close branches. Banks should follow FCA guidance, including considering alternative access where appropriate. One example of this is shared banking hubs. More than 50 hubs have been announced, with four now open, and the pace of delivery is expected to accelerate over the coming months. People can also access everyday banking via their local post office.

[Lord Holmes of Richmond (Con)]

My Lords, in the past 12 months, 847 bank branches have closed or are set to close. Four shared banking hubs have opened. Does my noble friend the Minister agree that the Government need to act to ensure local banking provision, including deposit taking as well as withdrawals and advice? They must also act to ensure acceptance of, as well as access to, cash; otherwise, what currency is cash if there is no place to spend it? Finally, will the Government consider carefully commissioning a review into access to digital financial services to ensure that everyone can benefit from all the financial innovations in that space?

[Baroness Penn (Con)]

My Lords, as my noble friend will know, in the Financial Services and Markets Bill, we are legislating to protect access to cash. That covers withdrawal as well as deposit services. The Government do not plan to mandate the acceptance of cash. That would be an unprecedented intervention. However, the increased access particularly to deposit services for businesses should allow those who wish to continue to accept cash to be able to do so on a more sustainable footing. My noble friend makes an interesting suggestion. The Government are working hard to ensure financial inclusion, including digital financial inclusion. I will think about his suggestion very carefully.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

Moved by

[Lord Holmes of Richmond]

218: After Clause 71, insert the following new Clause—
“Digital identification
(1) Within six months of the passing of this Act, the Secretary of State must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.(2) The digital IDs should be—(a) scalable,(b) flexible, and(c) inclusive.(3) The Secretary of State must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process with regard to the financial sector.(4) In this section—“digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1;“flexible” means capable of resilience and workable as technologies develop and evolve;“inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010;“scalable” means capable of national deployment.”

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to move Amendment 218 in my name and to speak to this group of amendments. In doing so, I declare my financial services and technology interests as set out in the register. I will speak to Amendments 218, 220 and 221 in my name and will also speak briefly to the remaining amendments in the names of my noble friends Lord Bridges and Lord Forsyth respectively.

Amendment 218 is about perhaps one of the most significant things that we could do to transform financial services in the United Kingdom. Whether we are talking about fraud, operational efficiency or whatever measure or element of financial services we are considering, to have a form of digital ID would transform the current situation. It is vital that the Government strongly consider and move forward with such a system of ID and, in doing so, fully engage the public on this. Understandably, if the public one day wake up and find that they need a digital ID to access their banking services, why would they think that is a good thing if they had not been involved at any stage in the creation and the deployment of such an ID?

To put it in a non-financial services frame, if I wanted to have a pint—not now, obviously, although the previous group perhaps took longer than we were expecting—I might be asked for a passport. What is the purpose of that? Why should the bartender see my name, my date of birth, my passport number, where I was born, et cetera? All that is required for that pint to be put in front of and consumed by me is that, at the point when I order and consume the pint, I am over the age of 18. Nothing more needs to be known.

The same credential-led approach is what we require in financial services—not a huge giveaway of data with the potential for businesses to grab everything about us, as has happened in other sectors of the economy. Put simply, we need a particular credential that is within an individual’s control and can be put across to enable a transaction or inquiry, whatever it may be, to take place. I ask my noble friend the Minister to comment on the need for the Government urgently to engage and to increase the work that is happening in other departments on a general digital ID to be particularly applicable to the financial services sector.

Amendments 220 and 221 concern artificial intelligence. It is worth me making a few preliminary points before I go into the specific elements of the amendments. A helpful Bank of England paper on this subject was put out on 11 October last year, lest anybody think that AI is something for the future and not for us to worry about in the Bill. In the paper, 72% of financial services businesses said that they already use, or are about to use, AI. None of them said that they believed that the current way in which they used AI was high-risk, while more than half said that they were currently constrained in their ability to deploy AI fully because of current regulations on the PRA and FCA approach to the subject. That is some of the backdrop. To put my own cards on the table, lest anybody think otherwise, I am neither Panglossian nor po-faced about AI or, indeed, any of the other new technologies that we have in our hands. Yes, they are incredibly powerful technologies, but they are in our human hands in terms of how we design and deploy them. Thus I describe myself as rationally optimistic about their potential.

Amendment 220 brings this to life, I hope. It is a real opportunity for the UK, not just in financial services but across the whole of our economy and society, if we have an approach to ethical AI. The UK could be world-leading in the deployment of ethical AI; financial services is as good a place as any to have such an approach. I reference the Centre for Data Ethics and Innovation in this amendment; I am not wedded to it. Other organisations, such as the Alan Turing Institute, also have a role to play but the key is that there is an agreed underpinning.

For example, when we did the Lords Select Committee AI report in 2018, we set out five ethical principles; I do not want to give them any more concretion, to reference a previous group, but I say to my noble friend the Minister that one of the key architects of those ethical principles was the right reverend Prelate the Bishop of Oxford, who was a member of the committee. One therefore understands that they have behind them more than just the weight of the mere mortals here today.

Amendment 221 seeks to build on the ethical AI deployed in financial services institutions, and to have in every such institution a member with a responsibility for AI, in the same way that we have a money laundering reporting officer. Obviously, specific to the size of the organisation, it does not need to be an individual who performs only that role, but somebody in every financial services institution in the UK needs to be a designated AI officer. Does my noble friend the Minister agree?

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[Baroness Penn (Con)]

I am afraid that I have gone as far as I can in detailing the approach that we would take to Parliament. We expect to engage Parliament fully. However, the legal basis for the digital pound will be determined alongside consideration of its design. Work is not yet at the stage where we can provide that further clarity.

[Lord Holmes of Richmond (Con)]

I thank all noble Lords who have participated in this debate and my noble friend the Minister for her response. At this stage, I beg leave to withdraw the amendment.

Amendment 218 withdrawn.

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[Viscount Trenchard (Con)]

Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.

However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I will speak to Amendment 238 in my name. Does my noble friend the Minister agree that “know your customer” and anti-money laundering—KYC and AML—are not working optimally? There is a plethora of examples that we could look at; I will not do so. The simple truth is that they are not fit for purpose and are not achieving their aims. They are not providing the environment that we would want to conduct our financial services in. Does my noble friend the Minister not agree, therefore, that it is high time we had a thorough review of the regulations to put in place a system that works and is inclusive, efficient and effective?

If we look at some of the practical elements, to put it in terms, is it not time that we stopped messing about with gas bills? That takes us to an amendment in a previous group on digital ID, which would go far in resolving many of the issues around KYC and AML. Does my noble friend the Minister not agree? The difficulties that we have heard about and which many members of the Committee may have experienced in all areas of the financial services landscape could be effectively resolved if we resolved the current situation with KYC and AML. It is resolvable; when she comes to respond, my noble friend the Minister could simply say, “I will resolve it”.

[Lord Eatwell (Lab)]

My Lords, on the point made by the noble Lord, Lord Holmes, surely these regulations are derived from the Financial Action Task Force. We would usurp international agreements if we modified our regulations in a way that was outwith the positions established by the FATF.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in day seven of Committee on the Bill. I again declare my financial services interests as set out in the register. I agree with almost all of the amendments in this group. Indeed, I have put my name to Amendment 184, in the name of the noble Lord, Lord Tunnicliffe. I will not say anything more about that; I will leave him to introduce it far more eloquently than I could.

However, I will speak to Amendments 186, 187, 189 and 239 in my name. I wish to talk about the accessibility of financial services and products, as well as access to them. Sometimes those two things are the same; sometimes they are not. I hope that I can bring that point to life with these amendments. In essence, what we are talking about here is a Bill that sets out some very good principles on access to cash. Cash still matters; it matters materially to millions. However, that is only one side of the coin. Without looking at the acceptance of cash, we might as well say, “What currency has cash if there’s no place to spend it?”, hence the need to look at access to and acceptance of cash if we are really to take the opportunity that this Bill presents us with.

Moving on, my Amendment 186 is about the need for “Accessibility of financial services and financial products”. It is what anybody should be able to rely on. Probably the best way to explain the intent of this amendment is through an example. For years, card payment machines were very accessible. They had raised numbers and a dot in the middle of the “5” key so everybody could use those machines independently, inclusively and accessibly. Now, we see a worrying and extraordinary rise in the use of flat-screen card payment machines. They are impossible for me to use. They are impossible for millions to use.

A worrying principle—I hope my noble friend the Minister will agree that it is such—underpins this. Through technological update, change and rollout, things that were previously accessible are now inaccessible. I do not believe that anybody in your Lordships’ House or elsewhere in the country wants that to be the case when it comes to financial services and products—surely not when it comes to any services or products. Does my noble friend the Minister agree? What do the Government intend to do to ensure that all financial services and products are indeed accessible for all users?

I move on to Amendment 187 on access to banking services, and a number of issues that the noble Baroness, Lady Tyler, touched on. With this amendment, I want to highlight the issue of acceptance of cash. There are a number of ways in which one could have gone about trying to assure its acceptance, such as imposing an obligation on retailers or on those of a certain size or kind, or on retailers offering a particular service. One of the major issues with acceptance of cash, specifically for small businesses, is what they do with that cash once they have it. It cannot be that cash becomes burdensome and expensive, particularly for small and micro-businesses. It cannot be that they have to spend an hour at lunch or the end of the day potentially closing their premises to drive to the next town or village to deposit the cash.

In Amendment 187, I suggest that all high streets of a specific size should have banking services which include deposits—

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[Lord Holmes of Richmond (Con)]

My Lords, my Amendment 187 seeks to draw together the need for access to cash and acceptance of cash, but in no sense places burdensome requirements on retailers or financial services providers, in terms of the provision in local communities, by virtue of what is now possible through shared banking hubs. As we heard earlier in the debate, since the Bill entered Parliament on 20 July 2022, 390 bank branches have closed. Can the Minister say how many shared banking hubs have opened in that time? If we plot a similar trajectory for this year, which seems reasonable on the data we have available to us, and suggest a similar, if not slightly higher, number of bank branches closing, how many shared banking hubs will be open by 31 December this year?

Amendment 187 would provide access to banking facilities on every high street and give the Treasury the power to determine the size and scale of that high street to enable provision across the country for individuals and micro, small and medium-sized enterprises for deposit and withdrawal for the benefit of the community, the economy and our country.

Moving to Amendment 189, if we consider not only the need for cash but the current geopolitical circumstances we find ourselves in, it would seem a very good idea to classify the cash network as critical national infrastructure. I thank my noble friend Lord Naseby who has put his name to this amendment, which simply states that the cash network should be critical national infrastructure because of economic reasons. I believe we can move positively to a digital financial future where everybody is included. It is one heck of a transition, but I believe we can get there. Even when we reach that point, for reasons of reliance, there may well still be a need for cash. The level of the cash network could be determined by the Government, but having a cash network would seem to be a thoroughly good idea for reasons of resilience, unless the Minister can suggest an alternative second or third line of resilience, which I would be delighted to hear.

Finally, my Amendment 239 asks the Government to consider an access to digital financial services review. This is critical and timely. It would build on the great work that was done with the Access to Cash Review published in 2019. It would have many of the same aims, but in no sense the same specificities. If the logic was good for an access to cash review, which I believe it was, does my noble friend agree that the logic for an access to digital financial services review is equally good? I suggest that the review should look at issues around access to digital payments, online platforms, mobile applications, skills and, crucially, connectivity.

It is probably best to look at this in terms of an example. Imagine a mobile application, the best digital payments application ever created. However, I do not own a smartphone, so that digital payment is not being made. Imagine the same application, but it is not accessible. That digital payment is not being made. Imagine I own a smartphone and I have that app, but I am in an area of low or no connectivity. I could have the best digital skills, the best smartphone and this best app, but the payment is not being made. Imagine I have the app, the smartphone and the connectivity, but I do not have the digital skills. That payment is not being made.

It is those issues and more that we urgently need to look into with an access to digital financial services review, which can come up with recommendations for the Government to put into practice for the benefit not just of individuals but of micro-businesses, small and medium-sized enterprises, local economies, communities, cities and our country. The logic was good for an Access to Cash Review; I believe it is good for an access to digital financial services review.

To conclude, we need access to cash, as well as acceptance of cash; access to banking services on every high street; cash as critical national infrastructure; and an access to digital financial services review. Will my noble friend the Minister channel a retro TSB marketing campaign and, for all these amendments, be the Minister who likes to say yes?

[Baroness Noakes (Con)]

My Lords, I have Amendments 179 and 190 in this group. I am not very enthusiastic at all about the provisions for cash access and distribution in the Bill. I am far from clear that a heavy-handed regulatory solution, which is what we have in the Bill, is necessary to preserve cash access and distribution, but, if we have to have it, I believe that the powers in the Bill should be time limited, which is what my Amendments 179 and 190 seek to achieve. Under these, the powers would expire in 10 years, unless the Treasury brought a statutory instrument giving a later date.

This is not a hard-nosed sunset clause, because we genuinely do not know what the future will be like. What we do know is that, before Covid, the use of cash was on a long-term downward trend and the use of debit cards had already overtaken cash. Covid then accelerated those trends so that, by 2019, debit card usage was 50% higher than the use of cash, and the latest data for 2021 shows that debit cards were used three times more often than cash. UK Finance forecasts that, by 2031, cash will account for only 6% of transactions while debit cards will account for more than half.

I do not deny that some people are more comfortable using cash than other payment options, and I accept that digital exclusion exists. It may well be a proportionate response to the current need for cash to protect its availability in the way that the Bill does, but I find it hard to see why we should set cash up on a pedestal as though it is some form of human right.

There is a large cost associated with cash provision. The Access to Cash Review found that it costs around £5 billion per annum. That is ultimately borne by all users of banking services, with the possible exception of holders of basic bank accounts, which do not cover their costs anyway and are already loading costs on to other users. As the use of cash continues to plummet, the cost will become disproportionately high because most of the costs involved are fixed.

I am certain that the future is digital, and the real need in the medium term is not to build shrines around cash points but to incentivise the financial services sector to make digital payment systems more accessible and inclusive. The best fintech brains should be put to work on this, and the banks need to see that it is in their interests to support innovation. This is where the regulators should be putting their efforts, rather than working out where cash points should be.

For this reason, I quite like the idea behind my noble friend Lord Holmes of Richmond’s Amendment 239, which calls for a review of access to digital financial services, although I am not sure that now is quite the right time. I am also not sure that a review should result in decisions made by government. We need to incentivise the providers of financial services to provide answers for this, rather than thinking that government can dictate how things will work in practice as society changes.

Some of the other amendments in this group, in particular those in the name of the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Tyler of Enfield, seek to cling to an idea of high street banking that has already been overtaken by events. Bank branches closed because people stopped going to them; I predict that the new hubs will go the same way. The future is digital—that is what we should be trying to encourage. Making banks shoulder the costs of branches or hubs that are little used will simply increase the costs of the banking sector. This will end up harming consumers because costs will be passed on to them or, in some cases, providers may decide to withdraw from servicing particular sectors. In trying to preserve high street provision, the outcomes for consumers are not good.

I do not believe that it is responsible to legislate to preserve a version of the past unless there is clear evidence that the benefits outweigh the costs. I doubt that the cost-benefit case could, in truth, be made at the moment for maintaining branches or paying for the setting up of hubs, but I am absolutely certain that, when we look back in 10 or 20 years’ time, we will be amazed that we even thought that standing Canute-like against technological and societal change was the right thing to do in this area.

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[Baroness Penn (Con)]

I will check for the noble Lord because I do not have that level of detail in my notes. They say that “85% of payments” were made without cash, not “the value of payments”, but I should double-check to clarify for him.

In the light of these innovations in the way that we bank, the Government recognise that it is incredibly important that people are not left behind—we have heard that in today’s debate. Many people still rely on physical services: in particular, millions of people still rely on cash and need access to withdrawal and deposit services.

Working with industry, the Government are already undertaking positive action to support cash access in this context. For example, existing initiatives subsidise free-to-use ATMs in remote and deprived areas. Following changes in the Financial Services Act 2021, there is a new ability to have cashback without purchase services, enabling withdrawals to the penny that people request. Communities can ask LINK to assess whether additional cash services are needed, with several major banks and building societies funding new shared services. As a result of that initiative, over 70 communities are due to get new cash deposit facilities.

In that context, it is important not to underestimate the significance of the provisions contained in the Bill. It is the first time, in UK law, that we are protecting people’s ability to access cash. The Bill provides the FCA, as the independent regulator, with the responsibility and necessary powers to ensure reasonable provision of withdrawal and deposit services.

In evidence to Parliament, the regulator said that it anticipates taking account of reasonable access to free cash services for personal customers—subject to due process, which includes a requirement to consult on its rules. In using its powers, the FCA will utilise the wealth of data that it has collected, including on access at the regional level, and it must have regard to local deficiencies in cash access services and the Government’s policy statement.

The noble Baroness, Lady Tyler, asked about the policy statement. It is currently being developed, and we expect it to be published after the Bill completes its passage. It is important that it takes into account the latest available data and evidence ahead of its publication.

I have clarification for the noble Lord, Lord Tunnicliffe, on the statistic that I used, so I shall not need to write. I can confirm that 85% of the number, not the value, of payments were made without cash.

[Lord Holmes of Richmond (Con)]

While we are getting clarifications in flight, may I ask my noble friend the Minister about the 86% of people using contactless? Are 86% of people using contactless all the time or are they making one payment a year? If someone from the Box is able to answer that in flight, that would be helpful.

[Baroness Penn (Con)]

That request has been noted. Reading the statistic in my notes, I would say that 86% of adults have used contactless payments, rather than it being a comment on how much they use them as part of their payment mix. If I am wrong, I hope that the people supporting me will tell me.

I talked about the policy statement and the significance of the measure that we are taking in the Bill. We have heard from the Committee that not everyone agrees with that approach. In legislating to protect access to cash, the Government have sought to provide that reassurance for those who rely on cash for a number of different reasons.

We have heard why it can be important for accessibility and for people to manage their finances. We have also heard about privacy concerns. However, we have not sought for the legislation to be prescriptive on the cost, type of facility or range of services offered at facilities. We are seeking to ensure that this primary legislation allows for innovation and flexibility, as the needs of people and our communities evolve over time. I think those advocating for greater access to services also recognised the need for that flexibility and change in needs over time. It is for those reasons that the Government do not support Amendments 176, 178, 182 and 185 from the noble Baronesses, Lady Tyler and Lady Twycross, and the noble Lord, Lord Tunnicliffe.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 20th February 2023 Grand Committee

Moved by

[Lord Holmes of Richmond]

123: Clause 41, page 57, line 22, at end insert—
“(c) be provided with any information or data that the Panel requires in order to fulfil its duties,(d) publish the agendas and minutes of meetings of the Panel, and(e) make publicly available its recommendations in full, including, but not limited to, the evidence base and analysis it used to make its recommendations, the assessed costs and benefits of the FCA’s activities and the range of representations made by Panel members to those recommendations.”Member’s explanatory statement
This amendment would require the FCA to provide its CBA Panel with the necessary data and information to undertake its duties and ensure that the Panel’s recommendations were made publicly available.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to start this fourth group on day five of Committee. As it is the first time that I have stood up today, I declare my interests in financial services as set out in the register.

I will speak to my Amendments 123, 129, 130, 132, 138 and 139; I thank my noble friend Lady Noakes for co-signing them. In essence, what they try to get at is pretty simple: to enable the CBA panels to be effective in the mission they purport to be set up to achieve.

I present to the Committee a new financial instrument: the ISA. Noble Lords might think that they are familiar with the ISA, but this ISA is “independence, scrutiny and accountability”, which we have heard so much about today and previously in Committee. I gift this particular ISA to my noble friend the Minister. Treat it as a woodworking router or some such device. If we take independence, scrutiny and accountability and apply them throughout the Bill, will she agree that, if current clauses do not stack up, they should be kicked out, improved and changed before Report?

With the CBA panels we currently have a conceptually useful form of ISA approach. However, the difficulty is that, as we have heard with so many other provisions in the Bill, as currently constructed they are the plaything of the regulator, again enabling the regulator to mark its own homework—or, even more so, to simply respond to whatever the CBA panels might say with, to put it in common parlance, “Whatevs”.

Importantly, rather than, for example, the membership of the panels, their agendas and outputs being down to the regulators, this suite of amendments can, in effect, empower a CBA panel to do its job effectively for all our benefit. Consider the membership: would it not be good if at least some of those members came from the sectors, with clear, recent and relevant expertise to bring to bear on the matters at hand?

If Amendment 123 and other amendments in my name—and others in this group, which all have a similar purpose—were agreed, it would enable these panels to operate far more effectively. The panels could also take a cumulative view on the impact of regulatory change. They could have a power of pre-regulatory scrutiny to consider the impact and force the regulator to think again before such regulations are brought into being. They could look at and opine on the overall economic impact of regulatory change. Having such an approach would make it far clearer and more transparent for all to see, when the costs are out there, whether there is necessarily any benefit from a particular change.

When my noble friend the Minister responds, will she agree that the CBA panels are a good thing, but it would be a great thing to fully enable and empower them to pass the ISA test? I beg to move.

[Lord Lilley (Con)]

My Lords, I did not speak on the previous group of amendments, but I endorse everything that my noble friend Lord Forsyth and the consensus of speakers said on that issue. I also strongly support what my noble friend Lord Holmes has spelled out, in not only proposing his amendment but providing an overview of this whole group.

We all agree that regulators must meet the objectives set by Parliament, but should do so in a cost-effective way, without erring, as regulators can, on the side of overburdensome regulation that makes life simpler for them without consideration of the costs to others. As drafted, the Bill requires both the FCA and the PRA to have two panels that undertake cost-benefit analysis. That is excellent but, as with much else in the Bill, it allows the regulators to mark their own homework or, at least, to appoint most of the panel of examiners who will mark their homework for them.

My Amendments 124 to 128 and 133 to 137 do, in essence, three things. They ensure, first, that all the members, not just the chair, are appointed by the Treasury rather than by the regulators; secondly, that they are independent; and, thirdly, more specifically, that they are not employees of the FCA or the PRA. I hope they find acceptance from the Government and this Committee. They are not contentious and are quite simple. They are within the spirit of the Bill, but simply tighten it up and make sure that what the Government appear to want is achieved without allowing the regulators to take over the process and run it in their own interest.

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I hope that my noble friend Lord Holmes will be able to withdraw his amendment and ask other noble Lords not to press their amendments when they are reached.

[Lord Holmes of Richmond (Con)]

My Lords, I thank everyone who has spoken in this group; indeed, I thank my noble friend the Minister for her response. At the beginning of that response, she set out very clearly the role and purpose of these panels—a role and purpose that could only benefit from much that is in the amendments in this group.

This is an area to which we will return. To pick one example, if good people, even independent people, come through such an approach—as I am sure they will—as currently drafted, they will not be independent appointments; that is clear, and that is just one example. We will need to return to a number of these issues for the sole purpose of making the panels as effective as they can be; this will lead to better regulation, help the regulator and benefit the wider sector. For the time being, however, I beg leave to withdraw Amendment 123.

Amendment 123 withdrawn.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I thank my noble friend Lord Moylan for tabling these amendments and digging fairly deep in this area. There is a lot happening in the City of London and in the whole financial world. There are opportunities for people who want to stay but, at this point in time, the windscreen is pretty misty as to what exactly is out there and whether or not it is regulated. What my noble friend has done is draw attention to this important area.

I talked to my two granddaughters, who take an interest in financial affairs, about what they think about their savings. What is interesting to me is that, for sixth-formers today, maths is absolutely key to their progress. Secondly, somebody is making them take an interest in their futures. That says a lot.

I support Amendment 55; I am very much behind it. I should mention—I think the Committee already knows this—that I have been deeply involved in the mutual movement, which wants to go into new waters to look at what is available and sensible within its clienteles. The same applies to the credit unions.

Noble Lords have spoken about financial inclusion. It is very important. However, I am not sure that there needs to be a report every 12 months. I can see that it should be so initially, but it seems like quite a burden on the authority to produce what I assume would be a long and detailed report.

As regards Amendments 228 and 241, I will wait to hear what my noble friend the Minister says but, in my experience, the joint-stock banks and anything with the Royal Bank of Scotland are in a pretty disastrous state at the moment. Branch after branch is being closed. People are not answering the phone. Emails are not being responded to. The banks do not even tell us when a branch will be closed; they forget then apologise afterwards. It is an absolute, unmitigated disaster; I hope that my noble friend on the Front Bench will try to get a grip on it.

I make no comment on Amendment 241 other than to say that I am really interested to hear the answer on it from my noble friend on the Front Bench.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in day 4 of the Committee’s deliberations on the Bill. I declare my financial services interests as set out in the register.

I agree with all the amendments in this group. My noble friend Lord Moylan’s amendments are clear, and I ask my noble friend the Minister to answer him in the affirmative when she comes to respond and to say that legislating in this area would be helpful on whatever agenda it was measured against. He also reminded us of Sid, who was the poster child for British Gas. It seems only appropriate, in that I find myself sitting next to a former prima ballerina, for me to say that I seem to remember BT using the music from “Swan Lake” for its initial public offerings—all to the good. It must be right that people have an opportunity to take part, with all the correct safeguards and rails around it, in these activities. I very much support Amendments 55 and 241.

Similarly, I support the amendments around the “have regard” duty for the FCA. My noble friend the Minister will be familiar with these arguments; we talked about them very much in our debates on the 2021 Bill, now an Act. We have had Oral Questions and Written Questions on the subject, so she will be well rehearsed in her answer on a “have regard” duty.

For this reason, I tabled Amendment 67A. It is time for the FCA to have a financial inclusion objective. That is in no sense to fetter the regulator’s independence or existing objectives. The financial inclusion objective could only be additive and assistive to its existing objectives on consumer protection, market integrity and competition, and to any potential future objectives as set out in the Bill.

Following the intervening two years since we last discussed financial inclusion in detail on the 2021 Bill, are there now more or fewer bank branches and ATMs? Is there more or less cash acceptance and financial inclusion? Whatever government agenda we consider—growth, levelling up, or increased connectivity and creativity for our citizens, communities, cities and country—a financial inclusion objective for the FCA makes sense. Will my noble friend agree that it is now time to enable the FCA to play a spearheading role in financial inclusion, and to accept Amendment 67A?

[Baroness Tyler of Enfield (LD)]

My Lords, as this is my first intervention in Committee, I refer to my interests in the register as a member of the Financial Inclusion Commission and as president of the Money Advice Trust.

I will speak to Amendments 75 and 117 in the name of the noble Lord, Lord Tunnicliffe, to which I attached my name, and Amendment 228 in the name of my noble friend Lady Kramer, to which my name is also attached. I also support Amendment 67A in the name of the noble Lord, Lord Holmes, who we have just heard from. Indeed, I would have been pleased to add my name to his amendment had I been able to do so.

In its 2017 report, the House of Lords Select Committee on Financial Exclusion, which I had the privilege to chair, recommended on a unanimous, cross-party basis that

“the Government should expand the remit of the FCA to include a statutory duty to promote financial inclusion as one of its key objectives.”

These key recommendations were reiterated in the 2021 follow-up Liaison Committee report, so this issue has been around for quite a long time. In my view, the Bill is an excellent opportunity finally to make some progress.

Amendment 75 would mean that the FCA must “have regard” to financial inclusion in the consumer protection objective. Amendment 117 would insert a statutory duty to report to Parliament annually on the state of financial inclusion, measures that the FCA has taken, and any recommendations to the Treasury that the FCA wants to give. I know some have argued that that would be onerous. I see it as adding a critical layer of parliamentary scrutiny and accountability to discussions on financial inclusion—something, frankly, that is sorely lacking at the moment. It has been a key theme of many of our deliberations on the Bill.

Whether through a primary duty, as in Amendment 67A from the noble Lord, Lord Holmes, or as a must “have regard” duty, as in the amendment from the noble Lord, Lord Tunnicliffe, such a duty would directly remedy the fact that the FCA’s consumer duty, which we will look at in a later group, deals primarily with existing customers—a point made by the noble Lord, Lord Tunnicliffe. The consumer duty does not address the needs of the customers whom the market views as more expensive and less profitable to serve and who are therefore excluded from the market.

This proposed new duty would also future-proof policy decisions made after the Bill passes. This would ensure that financial inclusion issues, such as free access to cash, which featured so heavily in our Second Reading debate, are dealt with as they emerge rather than dragging on for years, resulting in a race against time before the cash delivery infrastructure disappears completely.

Our previous debates on people’s need to have free access to their own cash are an excellent example of how the regulator is currently unable to act early on such financial inclusion issues, because they are viewed as outside its remit. The heart of my argument is that, by giving the FCA a cross-cutting “must have regard to” duty, with a requirement to publish findings, it will have the ability, and perhaps more importantly the incentive, to ensure that the needs of those currently denied access due to affordability issues are considered.

Why is this so important? Briefly, in a competitive market firms will naturally design a market around the people who are the most profitable. Certain consumers—we need to be honest about this—are seen as not desirable. These consumers tend to be those who are the most vulnerable and equipped with the least resources. That has consequences for those on the lowest incomes: they struggle to afford or have to pay extra for particular services or products and, if they cannot, they are often unable to access these products at all and are therefore excluded altogether.

Essentially, these amendments seek to remedy that harm. We have already heard a couple of examples of this: some people are paying more for insurance because of where they live, and some are excluded from credit or are paying more for credit due to their credit rating or, frankly, because they cannot benefit from direct debits or they need to use cash. We all know what has happened with the terrible scandal of forcible entry to install prepayment meters.

I will finish by talking briefly about the black hole between the FCA and the Treasury, and why what are seen as social policy issues too often fall through the cracks. That point was repeatedly made by witnesses giving evidence to the Select Committee. In essence, the problem is that industry is just not providing products to meet the needs of all consumers, and some customers it will never be profitable for the industry to serve. If consumer representatives take the issue to the Treasury and the FCA, the Treasury says that it requires more data to act. It sends consumer representatives to the FCA, which says that it is not its responsibility to investigate issues that touch on social policy, so it sends consumer representatives back to the Treasury. That is a totally Catch-22 situation.

It is not just people like me banging on about this. I was very pleased to speak last week to a senior representative of Phoenix, a FTSE-100 company focusing on savings and pensions, which is also calling on government to add a new regulatory principle so that the regulations must have regard to the need to tackle financial inclusion. I thought it was very telling that the company saw this as critical to the growth agenda.

I want to explain briefly why I have added my name to Amendment 228 in the name of my noble friend Lady Kramer. It very ingeniously adds a clear financial inclusion element to the authorisation or renewing of a bank’s licence, while requiring the FCA to have regard to a bank’s services to low-income communities. Major banks, frankly, have had little interest in people on low incomes and were, in my view, dragged pretty reluctantly into having basic banking accounts. That has got a bit better but not an awful lot. If we use bank licences, that gives banks another way to provide such services by supporting credit unions and community banks—institutions that are often better placed to provide banking that is properly tailored to low-income and excluded people.

There is a lot of scope for expansion here. The UK has a far smaller community bank and credit union sector than many other countries. I will not go through all the figures, but certainly the penetration rates in the USA, Canada and Australia are far bigger. Having this sort of arrangement in place is also very much linked to people's desires to have continuing access to face-to-face services, something that we have heard so much about, particularly from the excluded groups, older people and others. Although the banking industry has made some limited progress in addressing this issue, particularly through the launch of shared banking hubs, it has, frankly, been pretty glacial so far. As this amendment so cleverly says, however, there are other things that banks can do to ensure the provision of services, including face-to-face services in low-income communities, and that is why I support it.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I will not repeat what the noble Earl has said, but I thank him for the depth of his proposal and the work that he has done in tabling these amendments.

I remind the Committee that I have chaired two quoted companies. I have been chairman of one friendly society and seen through both Houses the Mutuals’ Deferred Shares Act, so I think that I have some heritage, in particular in the mutual movement, which I think is really important to our society and our economy. I take a deep interest in that mutual movement and, indeed, I know that my noble friend on the Front Bench and the Government are particularly concerned about helping the mutual movement move forward. This group of amendments is there to help that.

For me, these two amendments are central to the Bill. I have said this before and will say it again: growth in financial services is dependent on, and an extension of, what is happening in the financial world. There are some really exciting new developments happening, but they need help and occasionally a little persuasion. The FCA has a major challenge on its hands. I welcome that, as I am sure it does, but there is an understandable danger that having an increased spectrum of activities is new to the FCA. It should be reminded to look around the corner, do a little investigation and find out what is happening underneath and therefore what is coming forward. I am sure it will do that, but it needs prompting and these amendments do that.

I say finally to my noble friend on the Front Bench that the mutual movement, both the friendly societies and the credit unions, is looking for new ways to raise capital. That is fundamental to both those mutuals. I therefore hope the Government will look at the noble Earl’s amendment with an open mind and accept it.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in day 3 of Committee. In doing so, I declare my financial services interests as set out in the register. I will speak to Amendments 66, 115, 116, 196 and 222 in my name. Before doing so, I give more than a nod to the amendment in this area that has already been so eloquently and eruditely set out.

Amendment 66 is on reporting on competitiveness, which is essential. As drafted, Clause 26 in effect enables the regulators to mark their own homework—“in its opinion”. Does the Minister agree that it would be far better for accountability to government and Parliament for there to be a criterion for measurement of adherence to the competitiveness objective? Amendment 66 sets this out. I would be grateful for her thoughts on each of the paragraphs proposed in Amendment 66.

Amendments 115 and 116 look at reporting the regulators’ activities in making authorisations for new and existing firms. There are many elements set out in these amendments and I would be grateful for the Minister’s response on all of them because we are really talking about the time and cost to firms and prospective firms. We need a lot more transparency and clarity, and Amendments 115 and 116 are focused in that direction.

Amendment 196 looks to reporting on determinations. Significant concerns have been raised on this issue across the industry. I point the Minister to the joint report of the City of London Corporation and HMT on the state of the sector. Does she agree with its conclusions on declining levels of responsiveness and the need for the regulator to up its game in this respect?

Similarly, when this Bill was in Public Bill Committee in the Commons, we heard of it taking nine months for an overseas CEO to receive authorisation and that it has been 15 years since a new insurance firm was established in the UK—a sector in which we have such heritage and past success. That evidence to the Public Bill Committee is a clear indication that heritage and past success are no guarantee of future performance. The regulator has played a key role in that being the current state of affairs.

I think we need to revisit the timelines for determinations and have a greater level of specificity and streamlining. A number of concerns have been expressed about the appropriateness of questions that people have found themselves on the end of. Rather than just seeing the 90-day statutory time set out, would it not be better to revisit this whole process and see how we could have a far more effective and efficient means of determination related to the type of determination that was being sought?

--- Later in debate ---

[Lord Holmes of Richmond (Con)]

Before my noble friend sits down, would she care to spare a few words on Amendment 222?

[Baroness Penn (Con)]

I believe I have just addressed Amendment 222. We are supportive of the establishment of regional mutual banks in the United Kingdom, but they are currently still establishing themselves and are not yet trading. So it is a little too early for us to report on the current regime and any possible limitations of it for regional mutual banks.

--- Later in debate ---

[Lord Roborough (Con)]

My Lords, I declare my interests on the register as a shareholder in an FCA-regulated asset management company. I should add that I have worked for 30 years within investment banking and investment management, including five years as a designated senior manager, and in that role I had direct experience of the FCA. I also apologise that I did not contribute at Second Reading.

I speak in support of my noble friend Lord Lilley’s Amendments 54, 85, 46, 57, 64 and 82, which require the regulator to act with predictability and consistency. I believe these also tie in neatly with a number of amendments, yet to be discussed by my noble friend and others. Those address oversight, accountability and right of appeal, and following precedent will be important to those functions—fundamental to our legal system but not necessarily to our regulation at present.

I think all would agree that predictability and consistency of rule interpretation and enforcement are desirable, but they are not always in evidence, and I do not believe that the Bill addresses that. Indeed, by placing on the FCA secondary objectives around economic growth, international competitiveness and UK net-zero emissions, I agree with my noble friend that the Bill is likely to reduce predictability, defeating those secondary objectives by making the UK a more difficult place to do business.

From my own experience, I believe that the FCA is an effective and informed regulator, but there can be a fear of the unknown when interacting with it. Dealing with the FCA often requires legal intermediaries to try to understand what that body is currently thinking about interpretation of the rules. Enforcement actions frequently happen in the shadows and are surrounded by rumour. The legal intermediaries have the only access to these precedents that are established by those actions. There is also pressure on senior managers to enforce these unspoken interpretations under threat of personal liability if they fail to implement them in line with the FCA’s thoughts. Who would want to be a senior manager?

To address the noble Lord’s points on legal uncertainty, I believe this can be avoided by dynamic communication from the FCA on emerging issues and how those rules will therefore be enforced in future. That appears to remain perfectly possible under the amendments proposed.

These amendments would force the FCA to be clearer about how it interprets and enforces rules, leading to greater disclosure around the precedent being established in its recent actions—where information is confidential, perhaps anonymised. That in turn will also allow for more effective oversight of the FCA, as greater disclosure will allow more informed investigation of whether these rules and interpretations are consistent with the mandate of the regulator. Greater regulatory certainty would reduce barriers to innovation and entrepreneurialism. It would reduce the cost and complexity of doing business in the UK by removing unnecessary precautionary compliance expenditure. We need the regulator to demonstrate that it is acting with predictability and consistency to free our finance industry to focus on creating wealth for this country within a transparent regulatory framework.

These are excellent amendments, and I would have put my name to them had I known how.

[Lord Holmes of Richmond (Con)]

My Lords, I rise to speak to Amendment 74 in my name, but before I do so, I give my wholehearted support to the amendments in the name of my noble friend Lord Lilley and those in the name of my noble friend Lady Noakes, particularly Amendment 72, which is excellent.

My Amendment 74 can be summed up in one word: proportionality—simply that—no more, no less. Disproportionality does not reduce risk or increase consumer protection, and it certainly has nothing to say about optimising the resources of any organisation. Amendment 74 seeks to simply insert the proportionality concept, as does Amendment 72 in a broader sense—rightly. I hope my noble friend the Minister will respond positively when she comes to sum up.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I will make three brief observations. First, in this context, we are looking at the mandate that we are giving the regulator. One obviously could look at rules by some ex ante supervision, but that is not how this will work. Leaving it all to accountability after the horse has bolted is not the right way to proceed. It is very important that we give attention to the scope of the mandate.

Secondly, there is an obvious illustration as to the scope of the mandate in the proposal from the noble Baroness, Lady Noakes: proportionality. I would be astounded if anyone disagreed with that proposition, because only a fool would argue that you should make disproportionate legislation.

It seems to me that, in looking at this, we ought to know how the people given the mandate by Parliament intend to operate. Do they intend to produce consistent and predictable rules? I would imagine that they do intend to. They may agree with many of these objectives, but it is very important for the Committee to know the Government’s view of the form of regulation—the mandate—before we decide on what should happen. We also need to know how they are going to do it, because you always ask your agent how they will do something. If we were informed, there might be much less dispute.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have several amendments in this group. Amendment 48, which has already been referred to, seeks to add “sustainability” in as a sort of foil to the international aspect. Amendments 49 and 59 seek to remove the bits in brackets relating specifically to financial services, which is more of a comprehension issue. Amendments 51 and 60 propose another placing of the efficiency amendment in case it might sit better within the competitiveness and growth objective.

There is another very dangerous thing going on here, on which I agree with the noble Baroness, Lady Noakes—we agree more often than people would think. To some extent I support her Amendment 47, as I will explain later.

As has already been said, my Amendment 48 seeks to add in “sustainability” so that the competitiveness and growth objective would be “subject to sustainability and aligning with relevant international standards”. We have been talking about the need for balance and I felt that that, potentially, was a balance that we wanted. That also seemed a suitable place in which to write sustainability into the Bill. Perhaps we could choose other words, because I meant it to cover sustainability in financial terms and in a humanitarian and environmental context, too. I am not clear that some of the things which are said to be covered actually are covered.

When we were talking about position limits, I believe that the Minister said that taking humanitarian matters into account was something that the FCA could do. I cannot see anywhere among its objectives or anywhere else where that comes about. I can see that there can be market integrity things on position limits, but not whether you want to think about whether you are causing people to starve. There are things that we expect to be taken into consideration—it is not a subliminal matter, but just by implication—but they are not there if you look for the words. From experience of looking at things when they have gone pear-shaped and the regulators want an excuse, it seems to me that they will be asking where it says those things.

Returning to the competitiveness and growth objective, the more I look at it, the less I like it, not from the point of view of the competitiveness and growth bit but for all the other drafting around it. This is where I agree: what on earth is this “subject to international standards” doing there?” It gets sprinkled around quite liberally in legislation. When I was an MEP, I learned very soon after I got to Brussels that the Treasury wanted “alignment with international standards” put liberally into EU legislation as a way to try to cut down EU degrees of freedom. Now, here we are, post-Brexit, trying the same trick on ourselves and handing it to unelected bodies. Much as I did not object to the EU system, we are where we are. I do not think it is right. If we think recently in terms of LDI and so on, we hear the Bank of England saying, “Until we have the international rules on non-bank financial institutions, we have not done anything”, when something that is a complete viper’s nest is going on that is completely within everything to do with the United Kingdom. That shows us—we will come to this later on with some of my financial stability amendments—that it is looking for support and to hugger-mugger together with the rest of the regulatory organisations rather than putting the UK first and thinking clearly about what we want.

Are we now trying to control the regulators as we tried to tie the EU? We do not need it to control the regulators because they largely control what goes into the international standards, and those international standards have far less parliamentary scrutiny than anything done by UK regulators for the UK. I accept that the Treasury has a seat at the table and therefore knows what is going on, but it is very difficult to scrutinise what goes on at Basel and the other international organisations. You can get our regulators to explain what they agree with and claim victories where they put things in, but to get any explanation in time to be able to react to it and to influence it is extremely difficult. I tried this while I was chair of ECON in the European Parliament when we were doing the capital requirement rules. We forced one or two meetings with them, but they did not really want to know, and we are going to be in even more difficulty trying to follow those kinds of things within the UK’s parliamentary system.

Here we are signing up blind to something rather than signing up after scrutiny. That is what happens in other countries, notably the EU and the US, which have a whole system, including parliamentary procedure, to determine whether they are going to sign up to the international rules.

There is nothing wrong with political statements being made which say that the broad expectation is for us to be in alignment with the international standards, but I do not see what that does without any kind of caveat around it within primary legislation. It makes a mockery of us trying to scrutinise anything when we know that what we will be getting is just what the regulators have decided with other regulators, at a different level over the UK’s head.

As I mentioned on the last group, I also put my amendments on efficiency here, so I will not go into those again. We can discuss among ourselves where they fit best.

My final point relates to the words in brackets, which I address in my Amendments 49 and 59. Simply, when I read this part of the Bill, it did not read as if the financial services references were in there because that was the bit that the regulators were empowered to do; I thought that it was possible to make it read as if some kind of preference could be given to financial services over and above other things. I know that that is not the intention, so my only objection to these words is to ask whether the Government are absolutely sure that they read properly. I am not suspicious of the motives but, if one of my assistants had written this back in my patent attorney days, I would have been thinking that it was not quite right and asking if we could rephrase it. So there is nothing more suspicious to it than that.

I do not think that those words are actually needed because, as the noble Baroness, Lady Noakes, said, they can only influence financial services. Financial services must serve the economy and must serve other businesses. So you could, theoretically, enhance the economy within financial services by putting up all your charges to the rest of industry. One hopes that competitiveness and competition laws would stop that from happening, but you could have that interpretation. Somebody might be able to hang something on those words if they are still there.

That explains my amendments. I do not think there is anything too untoward; I would be interested to hear from the Minister about international standards. I accept that we have them in other pieces of legislation, but if we have got it wrong somewhere else, we do not need to keep repeating it.

[Lord Holmes of Richmond (Con)]

My Lords, I speak briefly to give full-throated support to the amendments in the name of my noble friend Lady Noakes. This tying to international standards seems odd, at best, for at least two reasons: first, this is attached to the competitiveness objective and not run through all objectives, not least the primary objectives; and, secondly, this objective, even before it has been launched, is fettered and shackled through this connection to international standards and the ISSBs that they are under. That seems curious, in that it seems to run counter to the espoused purpose and intention of the Bill. I would be very keen to hear my noble friend the Minister’s comments when she comes to sum up on those points.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in the second day of Committee on this Bill. In doing so, I declare my financial services interests as set out in the register. In speaking to my Amendment 219, I give more than a nod to the amendment in the name of the noble Lord, Lord Sharkey, which he set out so eloquently; had I had a pen, I almost certainly would have signed it and put my name against it.

In simple terms, this is very straightforward: SMEs are the backbone of the British economy. They are the largest private employers and the big companies of tomorrow yet, in this area, we are leaving them high and dry and at the will of many of the schemes that were set out so well by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles. I know that the noble Baroness, Lady Kramer, has all those unfortunate instances tattooed and ready to come out at any moment—rightly so because they all demonstrate that, when things go wrong, they go badly wrong. All too often, it is individuals and, in this instance, SMEs that are on the wrong end of it without a right of action against the FCA. My amendment would provide that right of action for breaches of the FCA handbook; I believe that it is similar to the amendment set out by the noble Lord, Lord Sharkey.

The Government talk, rightly, about the need to grow the UK economy. That growth will come largely from SMEs. Does my noble friend the Minister agree that they deserve our support? By simply accepting either of these amendments or, indeed, tabling a government amendment on Report, they would enable commercial loans over £25,000 to be brought within the perimeter and give SMEs not only the protection but the support that they should have from the regulator—and through that, from the Government—to enable that growth, which we all need for the UK economy and society. I ask my noble friend whether she will look to engage and potentially bring a government amendment to this effect on Report.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to take part in this debate on the second day of Committee. I have to say that it has been an extraordinarily powerful debate thus far and an absolute indictment of the UK financial sector. I begin by apologising for not taking part in the first day of Committee, despite having signed a number of amendments. I am afraid I was taking part in the debate on the so-called Genetic Technology (Precision Breeding) Bill, and it is impossible to spread oneself across too many places.

The case for these amendments, in particular Amendment 40 in the name of the noble Lord, Lord Sharkey, to which I am pleased to attach my name, has already been powerfully made, by the noble Lord himself and by the noble Baroness, Lady Bowles of Berkhamsted, in the debate on the previous group of amendments. I will make a couple of additional points. In particular, I draw on a survey by the Federation of Small Businesses, published in December, which found that 30% of small and medium-sized enterprises thought that they had signed financial contracts that contained unfair clauses and provisions.

The survey also found that successful applications for loans and other financing for SMEs had fallen precipitously. Less than half were successful in the third quarter of 2022; before Covid, two-thirds had been successful. One of the things we are always hearing from the Government is, “Rely on the market! People can shop around and choose”. We have already heard the reality of the inequality of arms—as the lawyers would put it—between a small business and a giant financial-sector company. But there is also no opportunity: small and medium-sized enterprises have to take money from wherever they can get it, if they are lucky enough to get it at all.

What we have here is a practical reality, as the noble Lord, Lord Holmes of Richmond, just set out. The financial sector is not meeting the needs of the real economy, and that issue underlies all our debates on the Bill. Is the financial sector there as a high-stakes casino in which a few people can make a lot of money and the rest of us have to pick up the pieces when it all goes wrong, or is it there to meet the needs of the real economy and give us a genuinely sustainable—in all senses of the word—society?

Although we have perhaps not needed him, it is a pity that the noble Lord, Lord Sikka, is not currently in his place, as he could also have contributed very powerfully to this debate. What we have is a litany of disaster. The FCA has a terrible track record. Your Lordships’ Committee is trying to do something to fix that, and, boy, does it need fixing.

Financial Services

Lord Holmes of Richmond Excerpts

Wednesday 11th January 2023 Lords Chamber

Asked by

[Lord Holmes of Richmond]

To ask His Majesty’s Government what steps they are taking to ensure that all financial services are accessible and inclusive, including ATMs and point of sale terminals.

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

My Lords, the Government work closely with regulators, industry and consumer groups to promote financial inclusion. We are currently legislating to protect access to cash and many firms offer services to make everyday banking and payment interfaces, including ATMs and point-of-sale terminals, more accessible for consumers. Importantly, all service providers, including banks and building societies, are bound under the Equality Act 2010 to make reasonable adjustments where necessary in the way they deliver their services.

[Lord Holmes of Richmond (Con)]

My Lords, if we are to ensure financial inclusion, we need not just to have such financial services and products but to ensure that those services and products are accessible. Does my noble friend agree that the worrying rise in inaccessible point-of-sale terminals and card payment machines—for example, accessible keyboards being replaced with inaccessible flat screens—marks three things: a prima facie breach of equalities legislation, a complete failure of inclusion by design, and just bad business?

[Baroness Penn (Con)]

My noble friend is absolutely right that it is really important that innovation aid inclusion, rather than hinder it. I was really pleased to hear about the work the Royal National Institute of Blind People has done with manufacturers to create an accessible solution for card payments, and that these devices are starting to appear in some shops. That is excellent work that we would like to see replicated to ensure that the aims he rightly referred to are met.

Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this Second Reading debate and to follow my noble friend Lady Noakes, about whose points I will say more in a moment. I congratulate the two maiden speakers from whom we have heard. I am very much looking forward to my noble friend Lady Lawlor’s maiden speech; I will not detain her much longer. I also congratulate my noble friend the Minister on the eloquence and erudition she showed in introducing the Bill. I declare my interests in the register, particularly those pertaining to fintech advisory work.

I will focus on two areas: financial inclusion and the regulator, mainly because nobody has mentioned the latter yet. Financial inclusion matters not just for those who find themselves on the wrong side of it. If we can drive financial inclusion, there are not just economic but social and national benefits for each and every one of us. That is why I am pleased to see the access to cash clauses in the Bill. It is important because cash still matters; it matters materially to millions. Looking at the reasonableness terms in the Bill, can my noble friend the Minister say what factors will be taken into account when we look at reasonable access to cash? It is a question of both distance—whether that distance is covered by public transport links— and cost. There are many factors to be considered, and I would welcome more detail on that in her wind-up speech.

As many other noble Lords have commented, access to cash is but one part of this. If there is no acceptance of cash, what currency does cash have if there is no place to spend it? In Committee, it is incredibly important that we look at the whole question of acceptance: which businesses are included; what size they are; what line of business they are in; and business clusters. There are so many issues to consider on how we nail the question of cash acceptance, because, without it, access does not go very far at all, as other noble Lords have commented.

The cashback amendment I tabled to the now Financial Services Act 2021, which my noble friend the Minister was kind enough to reference in her opening speech, demonstrates the enduring importance of cash. Evidence so far, since the introduction of cashback without the need for a purchase, clearly demonstrates that most of those transactions are for £20 or below, and therefore clearly serving individuals who were massively underserved or unserved before the passage of that legislative change.

Finally, on cash, does my noble friend the Minister believe it is time to consider cash as critical national infrastructure, and not just for financial inclusion? In the current uncertain world in which we exist, if there were to be a serious and sustained cyberattack on our financial systems, it seems that cash would provide a pretty robust first line of resilience.

Before noble Lords think that I am all about cash, I am interested in cash only while millions still rely on it and while we have not moved fully to the digital world. The future is inexorably digital, not least for payments. There is nothing necessarily problematic or negative about that, but that future has to be inclusive for all—and the transition to that future has to be similarly inclusive. Is it not high time to build on the work of the Access to Cash Review that the Government commissioned with, crucially, a review of access to digital payments?

On the regulator, as others have said, Parliament needs to consider seriously and urgently what we want our regulators in this space to do, without in any sense encroaching on their independence. What do we want them to do? How do we fit them out to do that? How do we put the structure and resource in place to set them up to succeed? How will we then hold them to account on all the principles which have been set out in that structure? It cannot be the case that it takes nine months for an overseas CEO to be able to come over to work in our financial services. It cannot be that it takes over a year for a start-up business to get a licence to operate in this country. It cannot be the case, as my noble friend Lord Ashcombe pointed out in his excellent maiden speech, that one size fits all. In insurance, how can it be that the same regulatory regime applies whether you are insuring a pet or a plane?

We know how to get this right with regulators. We saw that in the first part of the 2010s with our approach to fintech, and with the sandbox and with GFIN, which came as result of that. There was no better measure of success from the sandbox, and no better KPI, than the fact that it has been replicated in well over 50 jurisdictions around the world. That was all under Project Innovate; we need a second, third and fourth version of that project to drive forward all the opportunities which currently exist, combining common law, new technologies, and the potential geographic and historical benefits for London and the rest of the UK. As everybody in financial services knows, history is no guarantee of future success.

On the international competitiveness objective and the international perspective, what have the Government looked at in taking the best from around the world in this area—not least the MAS in Singapore, the Swiss regulator, and those in Bermuda and Australia, to name but a few?

In conclusion, this is the most important financial services Bill in a generation. It has extraordinary potential—but it is potential; it will not inevitably drive economic social good for citizens, cities, communities and our country. This is an extraordinary opportunity to make things better. In Committee and on Report, let us all work to make it even better.

Financial Inclusion in England

Lord Holmes of Richmond Excerpts

Wednesday 30th November 2022 Lords Chamber

Asked by

[Lord Holmes of Richmond]

To ask His Majesty’s Government what steps they are taking to increase financial inclusion in England.

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

The Government want to ensure that people, regardless of their background or income, have access to useful and affordable financial products and services. To increase financial inclusion, the Government work closely with regulators, industry and consumer groups. Since 2019, we have allocated £100 million of funding from dormant assets towards this. The Government are also promoting financial inclusion through the Financial Services and Markets Bill, for example by introducing legislation to protect access to cash.

[Lord Holmes of Richmond (Con)]

My Lords, when it comes to financial inclusion, cash still matters materially to millions. Would my noble friend agree that it is not just about access to cash? Acceptance of cash is equally important. Further, as we move increasingly towards digital, would she agree that it is time for the Government to undertake an access to digital payments review to ensure financial inclusion for all?

[Baroness Penn (Con)]

My Lords, our approach is that accepting cash is a decision for the firms involved. We have taken action to ensure that people can access cash through ATMs and elsewhere. My noble friend also makes an important point about digital inclusion and digital payments. We are looking at how we can promote that alongside financial inclusion in our work through the Financial Inclusion Policy Forum and other avenues.