Financial Services Bill

Lord Stevenson of Balmacara Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

Moved by

[Lord Stevenson of Balmacara]

8: Before Clause 1, insert the following new Clause—
“Duty of the FCA to make rules promoting financial wellbeing
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137C, insert—“137CA FCA general rules: financial wellbeing(1) The power of the FCA to make general rules includes the power to require authorised persons to promote financial wellbeing of consumers in carrying out regulated activities under this Act.(2) The FCA must make rules in accordance with this power which come into force no later than 6 April 2022.””Member’s explanatory statement
This new Clause would introduce a duty to promote financial wellbeing for the FCA which would strengthen the FCA’s consumer protection objective and empower the FCA to introduce rules for financial services firms informed by that duty.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, with this amendment, we come to the end of the group of amendments that precede the Bill. This is another slightly detached issue that I hope will get a response from the Government. Amendment 8 is supported by the noble Lord, Lord Holmes of Richmond; I am very grateful to him for his support. His amendments on financial inclusion, which are also in this group, raise many similar issues. I look forward to hearing his comments and to the subsequent debate.

I declare my interest as a former chair of StepChange, the debt charity. Amendment 8 would place on the FCA

“a duty to promote financial wellbeing”—

a new term—

“which would strengthen the FCA’s consumer protection objective and empower the FCA to introduce rules for financial services firms informed by that duty.”

As I have already said, this is a probing amendment, seeking at this stage what I would describe as a high-level response from the Government. I am not looking for detail at this stage; it is really a question of whether there is merit in further work being done on this concept. If there is, I am looking for some pointers about how the Government would like it to go forward.

The background to this amendment is a suggestion from the Money and Pensions Service that there is a case for giving the FCA the power to nudge—its term, not mine—financial services firms to underpin their activities with regard to the financial well-being of their customers and to go beyond current considerations of consumer protection or vulnerability, which I think they have already adopted to some extent. The intention is to remove any asymmetry of knowledge, expertise and capacity between the service providers and their clients. It is a very ambitious goal and would take a lot of work across many sectors not normally involved in the consideration of financial competence.

During my time as the chair of StepChange, we used the term “financial inclusion” to cover the need to have a society where everyone felt that they were knowledgeable enough to be secure and in control of their financial affairs; indeed, we have used the term since then. However, if we change that to “financial well-being”, we go much further. We could say that the aim would be to have the knowledge, confidence and resilience for all in society to pay bills as they fall due, cope with unexpected shocks and plan across our assets and income over time for a healthy financial future right through to well after retirement.

It is a very ambitious and much wider term than “financial inclusion” or any amount of financial education. The importance of the term is that it better captures a life cycle approach to the modern needs for economic health, generating confidence and empowerment within the population at scale coupled with a financial services industry that goes well beyond just designing and delivering good products and excellent services—which we accept they do, of course. It all should be backed by a regulatory system with a holistic overview and the powers to match.

Is this just smoke and mirrors, or is it a realistic vision of the way that things might be? Whatever the case, it is a good time to ask the question. As we discussed earlier today, the FCA’s 2020 Financial Lives survey found that just over half of UK adults—24.1 million people, in its figures—display one or more of the characteristics of vulnerability to their financial situation: a health condition, negative life events, low financial capability or low resilience. Other surveys have already been mentioned. The Salad Projects’ report was mentioned by my noble friend Lord McNicol, and hopefully will be again when he comes to speak on this group. It shows the reality of coping with low incomes and why a shortage of low-cost credit is such a major issue for so many citizens who, even when in regular employment and often with blameless credit references, cannot find appropriate ways to cope with even the basic costs of living, let alone saving for a rainy day and retirement.

The Government are currently consulting on a phase 2 review that includes financial inclusion on the levelling-up agenda, but we also have some other material. As has been mentioned already, The Woolard Review: A Review of Change and Innovation in the Unsecured Credit Market is a major contribution to the understanding of this area; it will come up again in later amendments. There is a lot going on. With this probing amendment, I seek a sense from the Government of whether they accept the case for a broader approach to financial well-being being championed by the Money and Pensions Service and by some firms such as NatWest and Nationwide. In particular, do they accept that, whether or not a formal duty of care is placed on financial service firms—I would support this—the forms of regulation in this area need to be expanded to deliver what the FCA calls

“fairer outcomes for consumers, including support for customers with poor financial well-being that might extend well beyond simple commercial transactions”?

Thirdly, would they consider taking this one step further and seeing what would be required from other partners and agencies?

If we really want a system capable of helping consumers to develop the skills and confidence to interact with financial service providers, people must be secure in the expectation that, if they need help in managing their decisions on their finances, they will not be ripped off and that there will be quality support for them. We must also ensure that education, advice, debt counselling services and other things focus on helping all citizens to develop the skills and confidence to interact effectively with financial service providers—not only providing the products that they need over the life cycle but developing their skills and confidence about their financial well-being and empowering them to take control and plan what they want to maximise their resources.

This is a big agenda that probably also needs action on many other issues such as low-cost credit sources. However, at this stage, we need a clear signal from the Government about how far this issue can go and on what terms they would like to see further work done.

I beg to move.

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

My Lords, it is a pleasure to speak on this group of amendments. I congratulate the noble Lord, Lord Stevenson of Balmacara, on the excellent way in which he introduced the group. The concept of financial well-being is a growing area and there is a lot for us all to reflect on. I thank him for all that he has done in this whole area of financial well-being, not least during his excellent time at the helm of StepChange.

We should thank all the organisations involved in financial inclusion, not least Macmillan Cancer Support and the Money Advice Trust. They go to people who are at the sharpest end of financial exclusion, and their commitment and the briefings that they provide to parliamentarians are a credit to everybody involved in that space.

I turn to my Amendment 9 in this group, which would place a duty on the Financial Conduct Authority to work toward the objective of financial inclusion. In doing this, I seek to raise the whole level of financial inclusion across our regulators. The context has moved on significantly during the Covid crisis. People who, fortunately, have never had to think about financial inclusion or have never been at a loss as to where the next bill payment will come from find themselves very much at the sharp end of financial difficulty. Fortunately, in many of those instances, the Government have stepped in through the furlough scheme and the self-employed and business loan schemes.

The reality is that, in a broad sense, these are enablers of continued financial inclusion. I would argue that, in this new world, it is difficult to consider the concept of financial stability while we still have such issues around financial inclusion. Financial exclusion has dogged our society for decades. It ruins lives, paralyses potential and corrodes communities. This amendment would give the FCA the objective of considering the barriers, blockers and bias that continue to mean that people are shamefully excluded from mainstream financial products.

Similarly, in the second point in my amendment, I want to place a requirement on organisations

“to report on their use of financial technology to increase financial inclusion.”

Not for one minute do I believe that fintech is the silver bullet—I am well aware of the issues around financial and digital exclusion—but fintech must be part of the solution and must be turbocharged at all levels of financial services. It must be understood much better by HMT, as well as the role it can play in varying degrees across financial services. This was proven at the beginning of the Covid crisis when, in a matter of hours, various fintechs came up with innovative solutions to address some of the issues that then rolled out as the crisis developed.

Having a financially inclusive nation makes sense. Having a financial inclusion objective within the scope of the FCA makes complete sense. I hope that this amendment will add to all the extraordinarily good work that everybody involved in financial inclusion is currently undertaking.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

I have received no requests to speak after the Minister, so I call the noble Lord, Lord Stevenson of Balmacara.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I thank all noble Lords who have contributed to this debate. I am deeply embarrassed by all the personal comments and blushed to my roots, which I hope was not too obvious on screen. The noble Lord, Lord Holmes, rightly pointed out the excellent work being carried out by many other agencies and bodies in this area as well as StepChange. I completely endorse his comments; there is a lot of good work going on.

I normally find myself aligned very closely with the noble Baroness, Lady Neville-Rolfe—sometimes rather embarrassingly, given our respective party positions—but this time I seem to have completely confused her, for which I apologise. The noble Lord, Lord Blackwell, was right that there are two quite separate tracks here, as my noble friend Lord McNicol picked up on. One is setting up a regulatory environment within which more good behaviour and activity by firms enhances the overall capacity of the system to work well in terms of financial capability and well-being. The other is hoping for the wider context that is necessary for all this to happen—particularly starting with education, which is always a hard nut to crack. As the noble Lord rightly said, this could be picked up by employers, trade unions, wider agencies, anybody with an interest in seeing a holistic society using the non-cash elements that my noble friend Lord Tunnicliffe was so scared of but yet so sprightly embraced in his unique style.

We all must learn how to operate with new technologies and new operations. My children do not use cash; they have not used cash for 10 years. They are all flashing out ridiculously brightly coloured cards and seem to have a much better track on what they are spending and how well they are doing than I ever did. I completely admit that. However, that is no excuse for me—I must get up there and be part of that process. But there is a role for Government, there is definitely a role for the FCA and the regulator; there is a role for companies that want to go down that track and have the capacity to do so, but there is no fixed agenda for that yet.

I wanted to hear a high-level endorsement by the Minister that this was something worth exploring and working for. She has given that, and I am very grateful. We can see this as a burgeoning programme of work which might well surprise us all in terms of where it might reach and what it might do. We are all rightly trying to support it in a way that will be most appropriate. With that, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.