Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Lord Hunt of Kings Heath

Committee stage
Monday 6th February 2023 Grand Committee

[Lord Hunt of Kings Heath (Lab)]

My Lords, I have Amendments 71 and 210 in this group, which deal with financial fraud. I very much support what the noble Baroness, Lady Bowles, said, and am sure that, between now and Report, there can be further discussions about the best way to embed in the Bill the tackling of financial fraud. As she said, we have two pieces of legislation going through in parallel, and we need to ensure that at the end of the day there is a concerted strategy to deal with financial fraud, which has been lamentably missing from our affairs over many years. The Bill certainly provides protection for victims of authorised push payment scans, but little else to address the growing and worrying problem of financial fraud.

We had a canter round some of these issues last Monday, when the Minister was very reassuring. She said that

“tackling fraud requires a unified and co-ordinated response from government, law enforcement and the private sector”;

that

“strong punishments … already exist under the Fraud Act”;

that

“the police and the National Crime Agency already have the powers to investigate fraud, with the FCA providing strong support”;

and that

“The Home Office is investing £400 million in tackling economic crime over the spending review period, including £100 million dedicated to fraud.”—[Official Report, 30/1/23; cols. GC 123-24.]

She mentioned the Joint Fraud Taskforce on a number of occasions and said that the Home Office will shortly publish a long-awaited new strategy—which I think was briefed out in some of yesterday’s Sunday newspapers.

That is all well and good. The problem is that one needs an act of faith to believe that the Government have finally recognised that they have to grip this in a much stronger way than has been evident over the last 12 years. The figures from the NAO are stark: in the year ending June 2022, fraud represented 41% of all crime against individuals, and there were an estimated 3.8 million incidents of actual or attempted fraud against individuals. Yet the number of fraud offences resulting in a charge or summons was paltry. In the year ending March 2022, 4,816 fraud cases resulted in a charge or summons. Less than 1% of police personnel were involved in conducting fraud investigations in the year ending March 2020. The public know that it is just hopeless going to the police; the default position is that they have no interest and want to give no help whatever, apart from encouraging you to go to Action Fraud—which your Lordships’ Select Committee on fighting fraud renamed “Report Fraud”, because it is a completely useless organisation.

I am particularly concerned about the financial abuse of older people, and noble Lords will see that my second amendment in this group is tailored towards that. It struck me that the previous debate on inclusivity is very much related to some points that I wish to raise this afternoon. The excellent organisation Hourglass has pointed out that the impact of financial abuse on older people can be devastating, especially as so many of them are on limited incomes such as the state pension. There are so many examples of frail older people losing large sums of money or property that they have lived in for years, or incurring large debts.

In September 2021, Hourglass and Hodge Bank collaborated on a survey to gain insights into the scale of financial and economic abuse and the impact of the digital divide. The report noted that 14.1% of respondents indicated that an older person they knew or cared for had been a victim of financial abuse in the past year. Research also pointed to a significant number of older people falling victim to economic abuse, in part due to the digital nature of banking and the digital divide.

Your Lordships’ Select Committee report, Fighting Fraud: Breaking the Chain, published only last November, was explicit about the scale of the problem generally. It said:

“A person aged 16 or over is more likely to become a victim of fraud than any other individual type of crime, including violence or burglary”,


and that

“Even though fraud is a massive problem,”

it is hardly given any priority at all. Indeed, my understanding is that fraud statistics are removed from public statements on crime rates. I wonder why that is. We know that law enforcement is hopelessly underresourced for the fight against fraud. Law enforcement agencies and digital investigation remain outside the capacity of mainstream policing, despite police forces operating in a highly digitalised society.

The Select Committee points out that

“The organisational structure for policing fraud is complex and confusing”—


it certainly is for members of the public seeking to report fraud—and that

“The criminal justice system has also failed to keep pace with the threat, resulting in a significant decrease in the prosecution of fraudsters over the last decade.”


The Select Committee warns that

“The telecoms sector has no … incentive to prevent fraud and has allowed blame to be placed elsewhere for too long.”


Similarly, the tech sector does not do anything like enough to

“slam the brakes on fraudsters using online advertising and social media platforms to reel in consumers”

and must

“do more to verify the identity of those using online dating platforms before they commit romance fraud.”

The Select Committee makes the point that all these industries, which are doing very well and enable fraud to take place, do not fear any significant financial, legal and reputational risks for failing to prevent fraud.

When fraudulent payments slip through the net, it should not be the sole responsibility of the financial services sector—in particular, the victim’s bank—to pick up the bill, although I believe that banks need to do much more than they do at present. All stakeholders in the fraud chain, including the payee’s bank, must know that they have a duty to prevent fraud and to address their failings and the victim’s losses once it has occurred. Despite the Minister’s confidence, the Government have shown very little enthusiasm. It has taken so long to even produce a strategy, that one really doubts the commitment to taking this forward.

My first amendment would add to the list of regulatory principles to be applied to the FCA and PRA

“the need to promote the detection, prevention and investigation of fraud in relation to the provision or use of financial services.”

In a sense, this can be seen in parallel to the amendment in the name of the noble Baroness, Lady Bowles. My Amendment 210 complements and adds to my noble friend’s amendment by emphasising the strategy he proposes, which I very much support, but there are some special arrangements in relation to older people.

I am sure that we will want to come back to this on Report. I am sure that noble Lords with an interest in this can come together with a unified amendment—I almost said composited amendment, but I hesitate to use those wonderful words in your Lordships’ Committee. We have to persuade the Government that, once and for all, we take fraud seriously. We need to kick a lot of the regulatory bodies, including the police, into taking this seriously.

[Lord Tunnicliffe (Lab)]

My Lords, I will speak to my Amendment 209. This Committee is unusual, in that the level of consensus seems enormous. A lot of the differences are around how to achieve where we want to go, but the coming together should worry the Government.

I will say a word or two about fraud. My noble friend has set out the fraud world. The two features, certainly of personal fraud, which are supposed to solve the problem are compensation, and investigation and prosecution. I am not against the idea of compensation being clearer and more open, but this has the potential for moral hazard. I will say no more than that. The problem with the compensation solution is that it takes the incentive away from proper investigation into criminality and prosecution. That is a bad thing.

There is so much fraud that there is an industry, and that industry breeds its own criminality—I fear that somewhere in the Bahamas they are setting up a university course on it. That spreads the atmosphere or culture more widely. We know that London has a horrible reputation for financial criminality in general—for example, money laundering. This is bad. We do not want big chunks of our society, particularly bright, competent people, involved in criminality. From every point of view, we must up the effectiveness of prosecution—treating the fraudsters as criminals and, where appropriate, locking them up.