Payment and Electronic Money Institution Insolvency Regulations 2021

Lord Tunnicliffe Excerpts

Thursday 10th June 2021 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the Minister for her introduction of these regulations, which are substantial in length and complexity. The underlying principle, however, is relatively simple and one that we support. I am also grateful to my noble friend Lord Davies of Brixton for keeping us company this afternoon, albeit from a safe distance. The speakers’ list may be short but it is perfectly formed.

Insolvency is a tricky topic. Different rules apply to different forms of insolvency, and such processes are often complex and slow. This inevitably adds to the already strong emotions experienced by all parties when a business relationship breaks down. It is also clear from the reference in paragraph 7.14 of the Explanatory Memorandum that, in extremis, the stability of the UK’s financial system may be at risk. As the Explanatory Memorandum notes, payments in the UK are undergoing rapid transformation, with electronic payments ever more popular. There is a clear justification for this new special administrative regime and the new FCA powers that come with it.

The consultation carried out prior to the regulations being laid cited only a small number of insolvency cases among payment and electronic money institutions. Nevertheless, those cases have been drawn out over many years and, as a rule, customers have not received the money due.

I hope that the Minister will forgive me for raising a contentious issue so soon after the passage of the then Financial Services Bill. Does she agree that concerns around consumer detriment in the insolvency context add to the case for a general duty of care on financial services firms? Can she provide a quick update on work by the Treasury and FCA in that area?

A key part of the special administration regime and its expanded toolkit is how so-called asset pools should be treated. Among other things, the regulations deal with the reconciliation process and impose bar dates on claims for relevant funds. While that is all helpful, what does the Minister expect to happen when asset pools are, for want of a better phrase, too shallow for customers to get their money back? What path to recourse, if any, will customers have if they disagree with the court’s determination that the administrator has taken all reasonable measures to initiate contact with affected persons? What additional powers, if any, does the special administrator have compared with those enjoyed under the present regulations? Further, who pays the remuneration and cost of the special administrator? Does any money for such payments come out of the asset pool?

Yesterday, my right honourable friend Pat McFadden asked in the other place why, given the rapid increase in the use of payment and electronic money institutions, they are not covered by the Financial Services Compensation Scheme. He rightly observed that disparities in which institutions are covered by the FSCS mean significant gaps in consumer protection levels. What plans, if any, do the Government have to explore that?

Finally, the Government intend to introduce an additional set of new insolvency rules, in due course, to deal with procedural issues and so forth. Is the Minister able to offer any clarity on the anticipated timescales?