Financial Services Bill

Debate between Lord McFall of Alcluith and Lord Tunnicliffe

Wednesday 18th July 2012 Lords Chamber

[Lord Tunnicliffe]

My Lords, Amendment 111A is in the names of my noble friends Lord Eatwell and Lady Hayter, and I shall also speak to Amendments 112, 115 and 116; I shall do so briefly.

Competition has an important role to play in the financial services industry. Indeed, as the party leader, my right honourable friend Ed Miliband, has been arguing since his conference speech in the autumn of 2011, if we are to rebuild our economy so that it works in the interests of the many and not the few, we need root and branch reform of our banks. Having greater competition and more players in the market is an important element of the process. Competition, along with choice, transparency, integrity and access, is an integral part of the market working well. On this side of the House we welcome, therefore, the inclusion of a competition objective in the remit of the Financial Conduct Authority.

However, we must continue to emphasise the question “What is competition for?”. It is for the consumer. In a sense, I am disappointed that the noble and learned Lord, Lord Fraser of Carmyllie, did not move his amendment. First, it would have been an opportunity for me to say just how much I disagreed with it. Secondly, it would have been an opportunity for the Minister to say how much he agreed with me. I hope, therefore, that he will emphasise the importance of this clause to the interests of the consumer. The competition objective in the Bill is built around the consumer, so I support the amendment in the name of my noble friend Lord McFall, which requires the FCA to have regard to the factors contained in new Section 1A.

I shall turn to Amendment 111A, and I am very pleased that the noble Lord, Lord Lucas, asked a probing amendment, proving that it is respectable to do so. This is but a probing amendment, in order to understand new Section 1E(1), which states that:

“The competition objective is: promoting effective competition in the interests of consumers in the markets”.

Perhaps it is trying to say “all financial markets”; if the Minister said that was what it meant, that would be great. Clearly it covers a great chunk of financial markets with new subsection (1)(a), “regulated financial services”. However, it needs to add new paragraph (b), because—and I did not know this, until I looked it up this morning—certain recognised investment exchanges are not, apparently, regulated financial markets, because they get an exemption under Section 285(2).

We have added “or market maker” because market makers seem to be taking in the role of investment exchange in some areas. There is a move-over. If those market makers are already covered by new paragraph (a) —“regulated financial services”—I would be content with that assurance. If they are not, I would be grateful if the Minister could sketch out what exemptions there are from this new paragraph. I beg to move.

[Lord McFall of Alcluith]

My Lords, I would like to address briefly a number of the points in Amendments 112, 115 and 116. It is just a simple change: rather than have “may have regard”, put “must have regard”—to, for example,

“the needs of different consumers who use or may use those services, including their need for information that enables them to make informed choices”.

It is this concept of informed choice that is very important. I well remember when we had the scandal of endowment mortgages; we looked at that issue in the other place. The consumers would be presented with two types of mortgages, one which the salesperson said had a small pile of cash at the end of the day, and the other a repayment mortgage. Believe it or not, the one which had a small pile of cash was cheaper than the repayment mortgage. It defied logic, but everybody piled into it, not least because the salespersons were getting 80% of the first year’s contributions from individuals. When we looked at this, the industry said, “This was way in the past”. It was depending on a high level of inflation for its returns. If inflation is 8% then you are going to get your cash pile, but if it is only 2% or 3% then you are in trouble. We are still living with the consequences of those endowment mortgages, with people making claims for them. That was not an informed choice, and it is why it is important to be more definitive in the Bill and insist that the FSA must look at that issue, as well as at,

“the ease with which consumers who obtain those services can change the person from whom they obtain them”.