Financial Services and Markets Bill

Debate between Lord Holmes of Richmond and Baroness Tyler of Enfield

Committee stage
Monday 6th February 2023 Grand Committee

[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.