Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Sikka

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to participate in this Bill. I strongly support Amendment 27. In view of the passionate speeches by the right reverend Prelate the Bishop of St Albans and the noble Lord, Lord Foster, my contribution will be relatively short, as they have said almost everything that I wanted to say.

In this technological age, it cannot be very difficult for any provider of bank accounts, credit cards, debit cards, store cards and other electronic payment systems to offer customers an opportunity to block payments to certain providers of services. As has already been said, the blockers actually increase consumer choice. The blockers would be of enormous help, as has been said, to those addicted to gambling or other ruinous addictions—of course, gambling is not the only one. It would certainly help their families too, because it would safeguard the family budget, which then cannot simply disappear by the swipe of a card or the click of a computer key.

I would urge that such blockers should be a necessary condition of the authorisation to trade in financial services in the UK. Other regulators, such as the Gambling Commission, should also insist that anybody who is licensed provides such facilities. The blockers obviously would not prevent people from indulging in gambling and other ruinous addictions. Nevertheless, they would really help vulnerable people in our society and I completely support this amendment.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this group of amendments and I declare my interests as set out in the register. I will speak to a trio of amendments and I will endeavour to do it in a trice.

First, I very much support the intention behind Amendment 16. I ask my noble friend the Minister, over and above what is set out in the amendment, what reports the Government have received of bailiffs entering properties during the Covid period, both in breach of their guidance and the Covid regulations, and what action all relevant authorities will be taking in this respect.

Secondly, on Amendment 26, I very much support my noble friend Lord Leigh of Hurley, who set out the arguments perfectly and succinctly. Would my noble friend the Minister agree that there is clearly a loophole, and what will the Government do effectively to close said loophole?

Thirdly, and perhaps most importantly, I give full-throated support to Amendment 37C, so perfectly introduced by my noble friend Lord Young of Cookham. It seems one of those amendments where, for want of a small legislative change, a huge material difference could be made to so many people’s lives. It is a funds-releasing, anxiety-relieving amendment. I ask my noble friend the Minister: if not this amendment, will the Government bring forward one of their own at Third Reading? If not this Bill, what Bill?

Financial Services Bill

Debate between Lord Holmes of Richmond and Lord Sikka

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on day four of proceedings in Committee on the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I want to speak to Amendment 51, standing in my name. The purpose of this new clause can be simply stated: what is the purpose of the KYC—“know your customer”—requirements? It is one of the top TLAs—three-letter acronyms—in financial services, but is it fit for purpose? Does it achieve what we would want? Does it feel modern in outlook? Does it feel inclusive? It not only goes to the heart of a number of other amendments in this group; it really is a key underpin, and the adoption of this amendment would transform our KYC system and approach in this country. We have to ask those questions: what do want KYC for; what does it need to contain; when do we need it, and in what form?

Amendment 51 seeks, on passage of the Bill, a review of KYC requirements that considers a number of elements in order to seek to transform our approach to KYC. My first point concerns the question of inclusion, and I draw this broadly. Whom do we want to come within, in what form and through what means? For example, asking for paper documentation seems not only outmoded but somewhat exclusionary. Where is the level of efficiency in the current provisions? We have the ability to have “atomic settlement”. The current KYC feels a million miles away from a settlement in a millionth of a second. My final point addresses exactly that question of outdatedness. We have one of the greatest financial services sectors in the world. The big bang in the 1980s revolutionised the City of London, but it goes much beyond that when we consider our role in fintech, not just in London but across the UK, and the Kalifa review on that very subject, published only last week. We are leading-edge in so many ways when it comes to our financial services. KYC in no sense reflects, represents or leads that technological position.

If this amendment were to be seriously considered, if not adopted, we could look at different means of ensuring KYC. We could look at attributes and elements that would assist and give real-time assurance, giving elements to those who need them—things which operate absolutely in real time and are to be relied on, rather than bits of paper, bits of supposed identification, which hark not from a 20th-century but a 15th-century approach to identification. That brings me, finally, to the whole question of digital-distributed ID, which I will speak on later in Committee. That goes to the heart of so much of solving the KYC puzzle. If we could deliver an effective and efficient distributed ID system for individuals and corporate entities, we would transform the position regarding KYC.

I look forward to hearing the comments of my noble friend the Minister on Amendment 51.

[Lord Sikka (Lab) [V]]

My Lords, I speak to Amendment 51A, which invites the Government to reduce the number of anti-money laundering supervisors so that we can have consistent application of standards and effective regulators.

Dirty money is a huge danger to every country on this planet. The full extent of dirty money sloshing around in the UK is not known, although some authorities estimate that around £100 billion a year may be laundered through our banking and financial system. Transparency International’s report, Hiding in Plain Sight, examined 52 cases of global corruption and noted that despite a plethora of form-filling and regulators, some 766 UK-registered business entities were involved in laundering stolen money.

The threat of money laundering to national security is well documented in the Intelligence and Security Committee’s July 2020 report, Russia, which stated that

“the arrival of Russian money resulted in a growth industry of enablers—individuals and organisations who manage and lobby for the Russian elite in the UK. Lawyers, accountants, estate agents and PR professionals have played a role, wittingly or unwittingly, in the extension of Russian influence, which is often linked to promoting the nefarious interests of the Russian state.”

Large sums of dirty money cannot be moved or concealed without the active involvement of accountants, lawyers, and financial experts. These enablers must be tackled, and without effective regulation that is not possible.

However, the UK’s fragmented regulatory system for dealing with money laundering is highly deficient. There are 25 anti-money-laundering supervisors. These include the Financial Conduct Authority, HMRC, the Gambling Commission and 22 other bodies, mainly trade associations connected with accountancy, audit, bookkeeping and legal and notarial services. The list of 22 includes bodies such as the Association of Accounting Technicians, the Association of International Accountants, the Institute of Certified Bookkeepers, the Institute of Chartered Accountants in England and Wales, the Law Society and sundry other trade associations. Having twenty-five supervisors results in duplication, waste, inefficiency, poor co-ordination, inconsistency and obfuscation.

In September 2016, the Committee on Standards in Public Life, in its report, Striking the Balance: Upholding the Seven Principles of Public Life in Regulation, stated that the seven principles of public life apply to all regulatory bodies, and the Government agreed. These include independence and public accountability, but for some reason the Government do not apply these principles to anti-money laundering supervisors. Accountancy and law trade associations have no independence from their members. In any regulatory system, there is a concern that regulators would be captured by those who are to be regulated, but that is the starting point in AML supervision by trade associations.

In October 2011, the Government announced that they would make quangos more democratically accountable, but they have failed on that front too. Of the 25 AML supervisors, 22 are not subject to the freedom of information law, even though they are an explicit arm of the state. Perhaps the Minister will be able to explain this anomaly. Their exclusion from FOI means that the public have no opportunity to scrutinise their practices.

The Government’s faith in regulation by trade associations is routinely punctured by the Government’s own reports. In October 2017, a joint report by the Treasury and the Home Office, entitled National Risk Assessment of Money Laundering and Terrorist Financing 2017, summed up key risks around the accountancy sector:

“complicit accountancy professionals facilitating money laundering; collusion with other parts of the regulated sector; coerced professionals targeted by criminals; creation of structures and vehicles that enable money laundering; provision of false accounts; failure to identify suspicion and submit SARs; and mixed standards of regulatory compliance with relatively low barriers to entry for some parts of the sector.”

The report went on:

“Accountancy services have also been exploited to provide a veneer of legitimacy to falsified accounts or documents used to conceal the source of funds. For example, law enforcement agencies have observed accountants reviewing and signing off accounts for businesses engaged in criminality, thereby facilitating the laundering of the proceeds. In many cases accounts have been falsified by criminals and unwittingly signed off by accountants, while in others accountants have been assessed to be complicit”.


That is the state of money laundering and the world of accounting.

However, rather than consolidating the number of regulators and thereby securing consistent application of standards and law, in January 2018 the Government created a new body called the Office for Professional Body Anti-Money Laundering Supervision, better known by the acronym OPBAS. At considerable cost, it became a “supervisor of the supervisors” and oversees the 22 trade associations. The formation of OPBAS is an acknowledgement that all was not well with the regulatory role of trade associations.

A year later, on 12 March 2019, the OPBAS director of specialist supervision said:

“the accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny.”

The OPBAS Director went on:

“We found that some did not fully understand their role as an anti-money laundering supervisor. 23% had no form of supervision. 18% had not even identified who they needed to supervise. Over 90% hadn’t fully developed a risk based approach and had not collected all the data they needed to form a view about their riskiest members and their services. Supervision was often under resourced – and in some cases, there were no resources.


We found that for many supervision wasn’t important. It was only an add-on. This means it often wasn’t on the agenda and for around half, there was insufficient senior management focus. For 20%, it wasn’t overseen by the governing bodies. In some of the professional bodies, where supervision had been outsourced to another provider, there was minimal oversight of the work being done.”


The director also said:

“We also found that in all but 2 professional bodies, processes for handling whistleblowing were inadequate. We found that 56% of professional body supervisors had no whistleblowing policy in place at the time of our assessments.”


There you have it—a powerful indictment of the folly of relying upon trade associations for regulatory purposes. They do not want to be robust regulators because of the concern that “their memberships will walk”.