Financial Services and Markets Bill

Lord Stevenson of Balmacara Excerpts

Committee stage
Wednesday 25th January 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support all the amendments in this group introduced by my noble friend Lady Noakes, to many of which I have added my name. I do not need to repeat the arguments so powerfully put by my noble friend. Clause 8 amends FSMA 2000 through new Section 71K to create a designated activities regime, which allows certain activities related to financial markets to be regulated within a framework that is separate to the existing FSMA regime for authorised persons, while still being compatible with a comprehensive FSMA model. The intended purpose of the designated activities regime seems to be to enable the Government to perpetuate the various retained EU law regimes without adequate parliamentary scrutiny, particularly given earlier comments on the inadequate way in which we scrutinise SIs.

New Schedule 6B is an indicative list of designated activities. This regime may at first be used to replace the retained EU law being revoked under the Bill, but there is no apparent limitation to the Treasury extending it in future to new or different activities. The designated activities regime is almost completely unconstrained in scope and effect. As such, it could be used to ban all kinds of products and classes of provider, and/or to establish parallel licensing requirements for particular activities, for both authorised and unregulated firms. The Explanatory Notes to the Bill state:

“Initially, the government expects most designated activities to be activities which are currently regulated through retained EU law”,


suggesting that new designated activities may be introduced.

The market will be keen to ensure a level playing field for regulated activities among FCA-authorised, dual-authorised and unregulated firms. Can my noble friend the Minister confirm that FSMA 2000’s new Section 71N means that rule-making in relation to designated activities will be the sole competency of the FCA? Currently, the PRA and the Bank of England share regulatory responsibility with the FCA for a number of technical standards relating to the entering into of OTC derivatives, for instance. Additionally, if the requirements are set out in the FCA handbook for authorised firms and in separate instruments for unauthorised firms, there may be a risk of divergence and inconsistency.

I have tabled Amendment 35 as a probing amendment, on removing the admission of securities to listing on a stock exchange from the lists of designated activities. First, I would question whether listing should be a regulated activity at all, because many listings happen without an issue of new shares or other securities and may, for example, be undertaken by companies wishing to show that they are good corporate citizens that want their corporate information to be available to the public in the same way it is for other listed companies. This was certainly a major consideration when many major Japanese companies such as Toshiba, Fujitsu and Honda listed their shares on the London Stock Exchange in the 1980s and 1990s. They subsequently undertook capital-raising exercises involving the issuance of securities, but those were separate exercises. I see no reason why unregulated firms may not act as sponsors for stock exchange listings, and therefore would question why the arrangement of listings should be a regulated activity.

Do the Government intend as a matter of urgency to act on the recommendations in the listings review undertaken by my noble friend Lord Hill of Oareford? Does the Treasury intend to undertake a fundamental review of the prospectus regime, as recommended by the review? Does my noble friend agree with the recommendation that prospectus requirements should be changed so that, in future, admission to a regulated market and offers to the public are treated separately? Could she tell the Committee whether she thinks that the empowerment of the FCA through the designated activities regime will make stock exchange listings more expensive and cumbersome than they have become during the past 14 years, or less? In that time, as my noble friend Lord Hill pointed out, the number of companies listed on the London Stock Exchange has declined by 40%. I look forward to hearing the Minister’s comments.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I shall speak to Amendment 32 in name, which is part of this group, although it points in a slightly different direction from the speeches we have just heard. I declare an interest, as I was chair of StepChange, the debt charity, in the period 2010 to 2014, although I have no current connection with it.

This is a probing amendment aimed at ensuring that a particularly egregious form of high-cost credit, log-book loans, issued under the bills of sale legislation dating from Victorian times, is afforded the customer protection measures rightly offered to consumers who use other forms of credit. In that sense, it needs an extension of the power discussed in this clause. To be clear, I would much prefer it if the Bills of Sales Acts of 1878 and 1882, and their related legislation, could be repealed. One way or another, I hope that some speedy action can be taken to resolve this issue. Such efforts appear to have stalled, despite a lot of work nearly a decade ago by the Treasury and the Law Commission.

Over the past few years, the Government and the FCA have been largely successful at clearing up the high-cost credit market. It is true that they had to be pushed to get started, and many noble Lords present may recall this House playing a significant part in focusing attention on payday loans, for example. But there are still issues to be addressed. The consumer duty is also a valuable step forward, and I hope that it will be a great success. At the same time, the introduction of statutory backing for the debt respite—the breathing-space regulations—and the forthcoming statutory debt repayment plan will offer immediate and effective help to the many hundreds of thousands of people who face unmanageable debts each year. The Government have done well in this area, and I commend them.

However, the current credit squeeze and cost of living crisis are going to exacerbate this situation. Indeed, if past history is a guide, logbook loans may well become as prevalent as they were in in 2014, when 52,000 bills of sale were registered in one year at the High Court. As I said, logbook loans are issued under bills of sale, which are governed by two Victorian statutes that I have already mentioned: the Bills of Sale Act 1878 had immediately to be amended, so there is also the Bills of Sale Act (1878) Amendment Act 1882. Basically, they allow individuals to use goods they already own as security for loans while retaining possession of the goods. This legislation is archaic and, in the words of the Law Commission,

“wholly unsuited to the 21st century.”

It went on to say that

“it causes detriment to all those who use it, including logbook lenders, logbook borrowers, business borrowers and third party purchasers.”

Nobody, it seems, has a good word to say for them.

This is all set out in a substantial Law Commission Report commissioned by HM Treasury in 2016. In that report, the Law Commission went on to point out the following. Most people who take out logbook loans are borrowers who already have difficulty in securing other forms of credit. Its research revealed that the term is usually six months to three years, while the interest rates ranged from 60% to 443% APR but were usually in the range of 120% to 187%—high-cost credit indeed.

There are complaints that some lenders use the threat of repossession of the goods to demand unreasonable and unaffordable extra payments, even when the loan is substantially repaid—something which is not permitted in, for example, hire purchase agreements. However, logbook loans lie outwith modern consumer protection legislation. It is true that the Financial Ombudsman Service may provide redress after the event, but the FOS is not able to prevent repossessions. There is no protection afforded to private purchasers who buy goods subject to a bill of sale, even if they act in good faith. Those who buy a second-hand car without knowing it is subject to a car-book loan face an unpalatable choice: pay off somebody else’s loan or lose the car.

The 1882 bills of sale legislation requires all bills of sale to be completed on a complex standard form and registered with the High Court, which uses a paper-based record system. Failure to comply with any of the documentation requirements carries substantial sanctions, not least being that the lender loses any rights over the goods or money owed to them. Those sanctions clearly would be out of scope if current consumer protection standards applied, but—

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

As usual, I have forgotten where I was in my perorations, so the Committee might get a few words that it has heard already, which can be ignored. I think I was talking about the requirement in the 1882 legislation that all bills of sale have to be completed on a particularly complex standard form, and then registered with the High Court, which, of course, uses a paper-based record system. The sanctions for failing to comply with any of its documental requirements would be out of scope if current consumer protections applied, and lenders are understandably loath to amend them.

It costs about £45 to register a bill of sale with the High Court, and another £50 to search it. That does not happen very often, because you cannot search by vehicle registration number or any other useful form; it is just a simple list of all the registered cases.

I think most people would agree that the Law Commission makes the case very well for the repeal of the Victorian bills of sale legislation. What is so disappointing about all this is that, originally, the Treasury seemed to share that view. In a Ministerial Statement in February 2017, the Government accepted

“the overarching thrust of the recommendations”,—[Official Report, Commons, 7/2/17; col. 6WS.]

albeit warning that they would not proceed until they had further reflected on some of them. The reflection took the form of a limited consultation with stakeholders, which received 25 responses, after which the Treasury decided not to take forward the draft Law Commission Bill. The principal reason given was that several of the 25 respondents felt that some of the consumer protection proposals in the draft Bill prepared by the Law Commission did not go far enough. It is almost difficult to believe that.

That remains the position. I have tried to keep the pressure on: I took over the Law Commission Bill as a Private Member’s Bill. I got 10th place in the ballot one year, but then lost the Bill because of a snap election called by, I think, Mrs May—I forget now who was Prime Minister. However, I have had meetings; in 2019 I was kindly joined by the noble Lord, Lord Young of Cookham, and the then Economic Secretary to the Treasury, John Glen, but to no avail. In his last letter to me, he accepted that there was consumer detriment taking place but, as numbers of logbook loans were falling, he said he believed

“that the rationale of the Government’s decision not to proceed with legislative reform in this area still stands”.

John Glen is now promoted and in the Cabinet, and I am where I am. However, I respectfully disagreed with him then and still do today. Only a few months ago, I was written to out of the blue—they must have got my name from the news about the Bill when it was first introduced—by people who had been scammed, aided by logbook loan legislation. An elderly couple had put all their hard-earned savings into a motor home, which they wanted to use for their retirement. Just when they had completed the purchase and the renovations, spending almost as much again as they had on buying the vehicle, they discovered that it had mysteriously acquired an outstanding logbook loan, and they lost the vehicle and their capital. This is the sort of thing that happens.

I look forward to the Minister’s response today, and I remain willing to attend further meetings if she thinks that might help move this issue forward. I know from discussions with StepChange that consumer detriment is still happening in this area. I agree with the FCA, which I spoke to earlier in the week, that the credit squeeze, inflation and the energy cost crisis is going to make the return of logbook loans—and, indeed, many other forms of high-cost credit—as inevitable as it is undesirable. If accepted, my amendment would give the FCA the tools it needs to assist the many people affected by this egregious legislation—albeit I still believe that the right solution is for the Government to commit now to repeal the Victorian legislation as soon as reasonably practicable.

[Lord Naseby (Con)]

My Lords, I am not going to repeat what my noble friends Lady Noakes and Lord Trenchard have said, but I certainly think that His Majesty’s Government—I am a very loyal member of the governing party—need to recognise that this is a once-in-a-lifetime opportunity in this Bill. Therefore, for me, the driving force should be to ensure that in doing what we are doing—I accept that it is important to mention designated activities—we should be driven by the need for growth for our economy, good competition and innovation. Those things are so key to the future of this country, the City and the whole of the financial services area that we need to be a little bit careful. I think that my noble friend Lady Noakes’ proposal is a perfectly valid one. The Government can have another look at it, but I do not think that it is necessary.