Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Lord Sharkey

Committee stage
Tuesday 21st March 2023 Grand Committee

[Lord Sharkey (LD)]

I rise briefly to support this amendment. It was with some surprise that we also discovered that this sector is unregulated, but we entirely understand how important it is to the small business community. In that respect, it is hard to see why it is not regulated and why it should not be regulated. It is hard to see how any Government could resist the force of the noble Lord’s amendment—but we may see a demonstration of that in a moment or two.

[Lord Tunnicliffe (Lab)]

My Lords, I first welcome my noble friend Lord Leong to this very special club, the Financial Services and Markets Bill club. I am sorry that it is a little thin on the ground. I will say no more than that the case, as presented and supported, seems strong.

One of the sad things about occupying this position is that, every time credit comes up, you get abusers. The large companies are frequently the abusers, and payday loans are a classic example of that. Anywhere there is credit, you end up with pockets of abuse. I unashamedly believe in regulation. I do not believe in bad regulation; I believe in good regulation and I think it should enter this field. But that is not a formal position, so we will listen to the Minister before concluding our point of view.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Lord Sharkey

Committee stage
Monday 20th February 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, I strongly support the amendment in the name of the noble Baroness, Lady Noakes, and observe that the Government have said, more or less consistently, that it is for Parliament to decide what form of scrutiny it requires. This acknowledges the importance of the issue. This is Parliament, and the amendment sets out a clear way ahead to establish parliamentary oversight. If the Government mean what they say, they will not oppose these amendments. They might join in a constructive discussion of how to make them better, but they will not oppose these amendments if they are to be at all consistent.

It is worth noting, though, that accountability and scrutiny are not quite the same. Even if we were to pass the amendments in the name of the noble Baroness, Lady Noakes, we would need to take a closer look at the delegated powers mechanisms that the Bill contains. As things stand, Parliament will have no meaningful say in whatever the new rules may be. Unless I have misunderstood, the proposed financial services regulators review committee will not be able to intervene as the new rules become law. We will need to think about that carefully as we make progress with the Bill.

[Lord Tunnicliffe (Lab)]

Can I say a couple of words about regulation and regulators? This is usually a political divide and I am proud to be on my side of it. I believe that society is the richer for good regulation; I am against bad regulation but in favour of good regulation. When one has good regulation, the problem is often that it is poorly executed. These financial regulators do the execution, so processes to hold them better to account have to be a good thing. That may include the distasteful fact—it may or may not emerge—that they are underresourced. Certainly, this sort of debate will bring out those sorts of issues.

I have to be careful here, but my general view is that this is really a rather good group. I shall consider it carefully and discuss it with colleagues across the House between now and Report to decide on the extent to which we will support it. I strongly recommend that the Minister does as asked and enters discussions with us, to see how much of this can be agreed and included in the Bill. We had a similar tussle two years ago when we did a big chunk of this and tried to draw in the regulators more. The regulators put down on paper that they were willing to talk to us more. The problem was that we did not have mechanisms in the House to take advantage of that. This would be a game-changer, by breaking through into that area and creating processes to have proper accountability and scrutiny—supervision is the wrong term—of these enormously powerful regulators, which are vital to the success of our financial markets, in terms of both opportunities and appropriate restraint to avoid catastrophes.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Lord Sharkey

Committee stage & Lords Hansard - Part 1
Tuesday 14th June 2022 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I will ask a brief question about regulation in the sense raised by the noble Baroness, Lady Noakes. Chapter 11 of the framework published by the Treasury says:

“Notwithstanding any exemptions that may apply to the Company, the Shareholder acknowledges that the provision of certain aspects of the Company’s activities may be subject to … the ‘FCA Rules’ or guidance or principles … the ‘PRA Rules’ or guidance or principles and … other applicable laws or regulations.”


Could the Minister help the Committee by saying what these “certain aspects” might be?

[Lord Tunnicliffe (Lab)]

My Lords, I rise to speak to these amendments, but I will make a general point about my approach to today’s debate. I find myself agreeing with a very high proportion of the amendments. We obviously want to hear from the Minister the extent to which the Government agree with them, but it seems that the issues we will face on Report will be about which of these amendments need to go into the Bill, rather than whether they are intrinsically sensible, which I think most of them are. I even venture into uneasy territory in this group by finding myself almost agreeing with the noble Baroness, Lady Noakes, again. I put it in slightly guarded terms—

Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 18th February 2019 Lords Chamber

[Lord Sharkey (LD)]

We support this statutory instrument, but I have a couple of quick questions. In paragraph 2.7, the EM notes that:

“In certain exceptional instances, a similar requirement to seek consent from the originating regulator applies where the confidential information originated from a third-country regulatory authority”.


That seems a little opaque. I could not find anywhere in the SI what these exceptional circumstances might be. That may well be my fault but I would be grateful if the Minister could point me at the relevant parts of it or, even better, explain what these circumstances are.

Finally, I was puzzled as to why the SI’s introduction of transitional provision, described in paragraph 2.16 of the Explanatory Memorandum, was necessary. That paragraph says:

“In addition, this instrument introduces a transitional provision so that any confidential information that was received on or before exit day will continue to be treated in line with the relevant provisions in EU regulations and directives as they had effect before exit day”.


That raised two questions for me. The first is one of necessity. Would this eventuality not be covered by the general transposition of EU law into UK retained EU law? The second is to do with the wording of the paragraph in the EM, which refers to information received on exit day. But we are scheduled to leave the EU at 11 pm on exit day, so what happens to confidential information received between 11 pm and midnight on exit day?

[Lord Tunnicliffe (Lab)]

My Lords, looking through this statutory instrument to see whether there were any policy shifts, as far as I can understand it, the EEA countries have better protection for their confidential information than third countries do. This statutory instrument takes that special protection away and then requires agreements to be concluded. That would seem to be the wrong way around. I would have thought that the protection which the EEA states have—that before the information can be passed on, permission must be sought from the originating country—would be better extended to other third countries. This would be a better position for the management of confidential information than what is referred to in the Explanatory Memorandum as a series of agreements, followed by instructions to staff. It is a bit late to have a debate on such an obscure point but if the Minister were to read Hansard tomorrow and send me a letter on this point, I would value that.

Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 4th February 2019 Grand Committee

[Lord Sharkey (LD)]

My Lords, as the Minister noted, the first SI—dealing with OTC derivatives, CCPs and trade repositories—was published in draft on 22 October last year. The second, dealing with financial markets and insolvency, was published in draft on 31 October last year. The impact assessments for these SIs are contained in a consolidated batch of nine HMT impact assessments, which themselves rely occasionally on references to IAs for other SIs. That batch was published on 29 January, three months after the publication of the drafts and two working days before we were scheduled to debate them. Even one working day beforehand, last Friday morning, the IAs were not available in the Printed Paper Office. Can the Minister explain the very late appearance of the SIs and why the PPO did not have copies by Friday? Can he reconcile this late publication of IAs with giving Parliament proper time for scrutiny? Can he assure the Committee that future Treasury IAs will be published in good time and lodged with the PPO?

The consolidated IAs contain a headline assessment of cost and benefits. As to costs, there are three headings: “Total Transition”, “Average Annual” and “Total Cost”. In each case, the IA estimates the costs as “Unknown: likely significant”. This is unsatisfactory and raises the question of whether HMT understands the role that IAs play in parliamentary scrutiny. It is of no help that the consolidated IA reckons the benefits to be “significant” but declines to attempt to quantify them. In the remaining 52 pages of the impact assessment there is no real detailed examination or quantification of likely costs and benefits, apart from a reading time-based estimate and a passing reference to the trade repositories SI where costs are estimated, apparently, at £500,000 per TR. I say “apparently” because there is a typo in the cost reference for these TRs, so it is not clear whether the figure is meant to be £50,000 or £500,000. Perhaps the Minister can clear that up. I think that it would help the Committee in its scrutiny of future Treasury SIs if consolidation was avoided and we returned to individual impact assessments in proper form for each SI.

Turning to each SI, I found it quite hard in parts to follow the EM for the OTC derivatives, CCPs and TRs SI. I would be grateful for some clarification from the Minister. In paragraph 6.1, the EM notes that the SI revokes two pieces of delegated legislation. Will the Minister expand on what these are and why they are being revoked? The EM does not say why—or if it does, I could not find it. In paragraph 7.7, the EM explains that:

“As a general principle, the UK would need to default to treating EU Member States largely as it does other third countries, although there are cases where a different approach would be needed including to provide for a smooth transition to the new circumstances”.


The EM does not explain what these cases may be or what the different approach might be. Will the Minister tell the Committee what these cases are, or may be, and what different approaches will be needed, and why?

Paragraph 7.12 of the EM states:

“Where the Commission has taken equivalence decisions for third countries before exit day, these will be incorporated into UK law and will continue to apply to the UK’s regulatory and supervisory relationship with those third countries—with the exception of those taken under Article 25 EMIR as set out in the CCP Regulations”.


Will the Minister explain what these exceptions are and why they exist?

In paragraph 7.16, the EM notes that the SI introduces a power that allows the FCA to suspend the reporting obligation for up to one year, with the agreement of HM Treasury, where there is no registered UK TR available. Surely the Treasury must know how likely this is and who it will affect. Again, the EM and the impact assessment do not help—or at least did not help me. Will the Minister say how likely this suspension is, who it will affect and what its consequences and impact might be?

I turn briefly to the second instrument, the financial markets and insolvency regulations, which is, by comparison, a model of clarity and straightforwardness. My only question relates to paragraph 1.76 of the impact assessment, which explains that the relevant EEA systems will be required to notify the Bank of England, before exit day, to enter the regime. What happens if they do not? What risks does this generate, and what procedures are in place to mitigate them?

I realise that I have asked quite a few quite detailed questions, and if the Minister prefers to respond in writing I would be happy, as long as we have the answers before the SIs reach the Chamber. I emphasise that I feel strongly that the consolidation of IAs makes proper parliamentary scrutiny significantly more difficult, and the very late production of IAs, as in this case, really does not help.

[Lord Tunnicliffe (Lab)]

My Lords, there is much that I would support in the intervention by the noble Lord, Lord Sharkey. I particularly like the way he sneaked in the fact that he got to page 41 of the IA.

The first instrument is on an area that I knew little about before I read it. With that limitation, it seems generally to make sense. It is clear about the transfer of functions, who will be responsible for equivalence decisions and information exchange—data comes over with a discretionary relationship. It is clear that the object of the exercise—at least this is how I read the Explanatory Memorandum—is to retain the discipline of EMIR. In view of its importance, I was surprised that a UK name for EMIR was not created, as was done in a previous SI, so that we would all know what we were talking about, given that the E in EMIR stands for European.

Going a little way into the detail, as the noble Lord pointed out, paragraph 7.16 allows a reporting obligation to be suspended for one year. From what I understand of the overall regime that this is part of, its very essence is open reporting of transactions. That is what the G20 came up with to create this regime. Will the Minister give us some feel for what risks are being taken by Part 2 of the instrument, which creates an opportunity for reporting to be suspended for up to one year? It also has what seems a fairly reasonable exemption for intragroup activity. It is a classic three years, plus however often the Treasury wants to extend it. It also has an exemption for energy derivative contracts up to 3 January 2021, but I could not see where that date came from; perhaps it is something to do with an international agreement.

Bank of England and Financial Services Bill [HL]

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 9th November 2015 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I will be very brief. This amendment would increase the number of non-executive directors of the FPC from the five proposed in the Bill to six. Exactly as with our proposal to preserve the NED balance on the court and our proposal to reject the abolition of the oversight committee, this amendment aims to preserve or strengthen the influence of the non-executive directors.

The Treasury has supplied a very helpful chart showing the current composition of the Bank’s governance structures. As things stand, the FPC consists of the governor, three deputy governors, the CEO of the FCA, one governor appointment—the executive director for financial stability—and four appointments by the Chancellor. These four people are the external members, the equivalent of non-executive directors. This means the FPC consists of five Bank officials, the CEO of the FCA and four non-executive directors.

The Bill before us changes this. It adds a deputy governor and one external member. In the words of the Treasury briefing note, it adds the latter to,

“maintain the existing balance between existing executive and non-executive members”.

Under the new arrangements, the composition of the FPC will be: six Bank officials, the CEO of the FCA and five NEDs. As the Treasury note says, this preserves the preceding balance, but it also highlights the position of the CEO of the FCA. We do not argue that she should not be a member of the FPC—on the contrary—but we are not convinced that she could be described as an external member, with the same independence of thought and action as the other truly external FPC members. Indeed, the Treasury note does not describe her as an external member. It simply lists her as “the CEO of the FCA”.

In many respects, the CEO is more like a Bank official than an external member. She depends for her job on the confidence of the governor and the Chancellor. What her organisation can or cannot do is in many respects controlled, or can be controlled or constrained, by the Bank or one of its organs. We saw what happened to the current FCA CEO’s predecessor: Martin Wheatley was summarily sacked by the Chancellor. I assume the governor, at the very least, did not oppose this. On balance, it would be entirely reasonable to conclude that the CEO of the FCA is not as independent of Bank influence as the truly external members of the FPC. In practice, that means that in the current and proposed FPC compositions, there will be a majority of Bank officials and Bank-dependent officials, and a minority of external members. We believe that that is unhealthy. We believe that accountability and scrutiny will be improved by having a more truly independent member on the FPC. It should also be true for the PRA, incidentally, and I will argue that case in Amendment 19. This amendment would raise the number of independent members of the FPC from the five proposed in the Bill to six. It does that to ensure a sufficiency of truly and unquestionably independent members on the FPC. I beg to move.

[Lord Tunnicliffe]

My Lords, I will try not to make this a habit, but I find the case persuasive.

Bank of England and Financial Services Bill [HL]

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 9th November 2015 Lords Chamber

[Lord Sharkey]

My Lords, I do not believe that Clause 3 should be part of the Bill. Clause 3 abolishes the oversight committee and transfers its functions and responsibilities to the court itself. This is a significant weakening of the oversight of the Bank. The oversight committee consists only of the non-executive directors of the Bank; there are quite deliberately no bank officials on the committee. Parliament arranged this in order to be certain that oversight was truly independent and to avoid the possibility of undue bank influence in assessing the performance of the Bank itself in its various roles.

There is an irony in the proposal to abolish the committee. As the noble Lord, Lord Eatwell, pointed out at Second Reading, the Court of the Bank was opposed to the original proposal to create a supervisory board. It was the Bank itself that proposed an oversight committee composed exclusively of non-executive directors.

The reasons given by the Government for the abolition of the oversight committee are extraordinarily weak. The Minister’s letter to me, received last Thursday, says about the oversight committee:

“The new oversight functions and transparency measures have been successful, but the extra layer of governance imposed by the oversight committee has proved unnecessary”.

It goes on to say:

“There is effectively an oversight committee overseeing the work of an oversight board”.

That is emphatically not the case. It was precisely because Parliament found oversight by the board to be unsatisfactory and defective that it introduced the non-executive director-only oversight committee.

In exercising oversight of the Bank there is a completely obvious difference between having that oversight carried out by the Bank itself sitting as five officials and seven NEDs, and having it carried out by an oversight committee composed only of non-executive directors. Anyone with experience of corporate governance in the commercial world would immediately recognise the difference and the danger to independent scrutiny in the current proposal.

The Minister also says:

“The non-executive chairman of the Court has found the division of responsibilities between the Court and the Oversight Committee difficult to operate and unnecessarily complex since, to ensure that the meetings are effective, the Oversight Committee has often required the presence and engagement of the executive members of the Court”.

As a reason for abolishing the oversight committee, this is very feeble. Does the chair of the court imagine that the oversight committee could function without calling on the executive directors? How could any oversight committee function without evidence from the executives it is charged with overseeing? Does the chairman not understand the obvious and critical difference between court executives being called to give account to a committee of nine non-executive directors, and these same court executives giving an account of their actions and decisions to a full court meeting of five bank executives and seven non-executives? When you come right down to it, the main reason advanced by the Government for abolishing the oversight committee seems to be that the chair has diary and scheduling issues.

Perhaps I should remind the Committee—although seeing those present in the Chamber this afternoon, I probably do not need to—that Parliament considered the oversight committee a vital part of the reform of the Bank’s structure of governance. It was intended to prevent a recurrence of groupthink and as a check on the tendency to arrogance. It was intended as a means of ensuring a cool, independent view of the Bank’s operation, as a means of ensuring proper scrutiny and transparency and, as the Minister says, it has been successful in doing exactly this.

The Government have made no meaningful case for abolition. Abolition would reduce oversight and transparency and reinstate the Bank’s influence over oversight itself. It would ignore all the reasons Parliament advanced for the establishment of the oversight committee in the first place and, in common with other measures in the Bill, it would increase the influence of the governor and the Bank in areas where Parliament has taken deliberate steps to decrease it. Abolition is a retrograde and dangerous measure. The Government have given no compelling reasons—in fact, hardly any reason at all—for abolishing the oversight committee. This clause should not stand part of the Bill.

[Lord Tunnicliffe]

My Lords, I support the noble Lord, Lord Sharkey, in his contention that the clause should not stand part of the Bill. This whole issue is about holding the executive to account. In these situations it is very difficult to make a speech which does not sound as though you are criticising the current executive and governor. Oversight mechanisms are in place for when things go wrong. They are largely irrelevant when things are going right but they are there in case they go wrong. I contend that the Government’s proposals significantly reduce the power of the non-executives to hold the executives to account.

Those of us who sat through those long days of Committee on the Financial Services Act 2012 will remember that the Government stated that they,

“fully recognise the importance of strong lines of accountability for the Bank, given its expanded responsibility and powers”.—[Official Report, 26/6/12; col. 184.]

I am not sure whether the Government took that view immediately in the debate, but it was the consensus in the Chamber at the time, after an enormous amount of discussion.

Anybody doing what you have to do in the modern world to see how the Bank functions and looking it up on the Bank’s website will find a very good page—except that we are about to change it all—labelled “How we are governed”, which says:

“The Oversight Committee of Court, consisting solely of non-executive directors and supported by an Independent Evaluation Office, reviews and reports on all aspects of the Bank’s performance”.

That is very convincing for anybody with a proper interest in the banking structure and all the various banking responsibilities. There is a process whereby people who know what is happening can call the executive to account.

Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 2nd March 2015 Grand Committee

[Lord Sharkey (LD)]

My Lords, I will speak only to the first of the two orders before us. This order has the usual eye-catching name for such things: the Electronic Commerce Directive (Financial Services and Markets) (Amendment) Order 2015. A better and clearer name for the SI would be: “Closing a Gigantic Payday Lending Loophole”, because, as the Minister said, that is exactly what the SI does.

On 9 December 2013, in response to amendments put down by the noble Lord, Lord Mitchell, and by me, the Government finally accepted the need for strict control of payday lending. The FCA rules that followed capped the cost of payday loans and limited the number of permitted rollovers. They also created the conditions for real-time data-sharing by lenders in order to reduce the incidence of multiple simultaneous loans. The Treasury and the FCA are to be congratulated on that. Together, with some prompting from your Lordships’ House, they have entirely changed the nature of the payday loan sector in the United Kingdom. What started out as outrageous and cruel usury has been reduced to more or less sensible costs and more or less sensible limits. The capacity of payday lenders to inflict terrible damage, as they were doing, on the most disadvantaged has been severely reduced, and I am pleased to be able to say that many payday lenders have simply shut up shop in the UK as a consequence of the new regime.

I do not think that the situation is ideal yet because, for many of us, the number of rollovers is too high, there is not yet a proper real-time database of loans outstanding and there is no mechanism for automatically preventing multiple simultaneous loans. Of course, as we speak, payday lenders are busy changing their business models in ways that will require continued vigilance on our part. We will have to see how all that works out.

In the debate of 9 December 2013, I raised for the first time the question of what seemed to me a gigantic loophole in the proposed new regulations. This was the loophole to do with the e-commerce directive, which we are discussing. As the Minister said, this directive would allow any payday lender to avoid our regulation if they were based elsewhere in the EEA and were trading in the UK only electronically. This would mean that any payday loan company could continue to operate in the UK but entirely outside our rules, caps and limits if it were based in the EEA and had no bricks and mortar presence here in the UK.

I asked the Treasury at the time what it intended to do about this. I had subsequent conversations with the Minister and officials about the problem. This order is, as the Minister correctly said, the solution to that problem. It closes the gigantic loophole in the regulations. If payday loan companies based abroad now try to use the e-commerce directive to avoid UK regulation, they can now be stopped from operating in the UK or forced to comply with our rules if they want to continue to operate in the UK. This is a very good and very necessary step forward, and I am delighted that the Government and the FCA have acted.

As the Minister said, this new order adds to the protection against the immoral and unscrupulous exploitation of the most vulnerable people in our society. However, it is a Treasury order and it is written in the Treasury’s normal, deathless—meaning, obvious-on-the-face-of-it—prose, which means that there are just a couple of questions that I would like to ask the Minister.

New Regulation 11A lists the kinds of activities that the order will apply to. Can the Minister say whether this list includes debt management companies? I know that he is aware of the wholly unacceptable charges and practices of some companies operating in this sector.

New Regulation 11B (2)(a) seems a little ambiguous. It says that the authority must be satisfied that the incoming provider,

“directs all or most of its activity to the United Kingdom”.

The question is: how is “most” to be interpreted here? Does it mean “most” by weight of advertising, “most” by number of customers or “most” by the value of lending to those UK customers? How will the authority arrive at a measure of whichever interpretation of “most” it wants to use? I very much hope that my noble friend the Minister will be able to say that the FCA will be able to use all or any of the above interpretations and that it will be able to use, as a conclusive determination, whatever measures it considers reasonable.

Those are details but, in this area, detail is often absolutely critical. However, I do not want the detail to overshadow my congratulations to my noble friend the Minister and the FCA. They have closed a potentially very damaging loophole in the payday regulations.

[Lord Tunnicliffe (Lab)]

My Lords, I start by welcoming the noble Lord, Lord Sharkey, to our debates. The noble Lord, Lord Newby, and I feel flattered that we are now three instead of our usual two on these instruments. The noble Lord, Lord Sharkey, and colleagues on my Benches are to be congratulated on the campaign they have waged on this issue. The noble Lord’s description of the e-commerce directive and a gigantic loophole is absolutely valid, and I join him commending the Government on closing that hole. However, we believe that this is only part of the way forward. The payday scandal has been attacked in the sense that many unscrupulous operators have been driven out of the market, and that will go further, but we wish to promote safer and more ethical forms of lending. We will try to ensure that co-operatives and mutual ownership models are able to compete on a level playing field. We will look to give greater power to local authorities to eliminate the spread of payday lending shops in town centres, and we will want to investigate ways in which to support mutuals—for example, by improving the regulatory structure in which they operate and making available support from the British investment bank. The sad fact is that we have problems in our society that mean that short-term loans are needed. It is not just about driving out the bad guys; it is about creating opportunities for a new breed of good guys. We already have credit unions to turn to as an example.

On the second order—and I thank the Minister for showing us how the two orders fit together—the Explanatory Memorandum makes perfect sense, except for the part of it that he explained, which I am left having trouble understanding. Paragraph 7.1 says:

“To extend the scope of the limited permission regime in relation to ‘domestic premises suppliers’”.

I see the importance of extending the scope to domestic premises suppliers. I went to the order—and you know that you are driven to your limit when you actually read the order—and I found that,

“domestic premises supplier” means a supplier who … sells, offers to sell or agrees to sell goods, or … offers to supply services or contracts to supply services … to customers who are individuals while the supplier, or the supplier’s representative, is physically present at the dwelling of the individual”.

I am gripped of the importance of the regulations applying in those circumstances. The key issue is the caveat in sub-paragraph (3B), which says:

“A supplier who acts as described in sub-paragraph (3A) on an occasional basis only will not be a domestic premises supplier unless the supplier indicates to the public at large, or any section of the public, the supplier’s willingness to attend”,

and so on. It seems that the differentiation is on whether they advertise or not. If I have got that wrong, I would be grateful to the Minister for writing to me. I cannot see how the words of the provision translate to the picture that he has just described, with what I would have thought was almost peripheral to suppliers not being covered rather than this specific thing, whereby,

“unless the supplier indicates to the public at large”.

I do not know what that means other than that they are in the advertising business.

Finally, does the Minister know of any specific instances where the issues that the order remedies have manifested themselves, or is this anticipatory and intended to stop a problem before it arises? Is he satisfied with the FCA’s performance as a regulator so far, since it took up those responsibilities from the OFT?

Financial Services and Markets Act 2000 (Consumer Credit) (Designated Activities) Order 2014

Debate between Lord Tunnicliffe and Lord Sharkey

Monday 10th February 2014 Grand Committee

[Lord Sharkey (LD)]

My Lords, I shall speak to both orders. The first takes up little more than a page, while the Explanatory Memorandum attached to it takes up 49 pages. The second order takes up 30 pages and the Explanatory Memorandum for that also takes up 49 pages, but is essentially the same text as the first one. That is not a complaint: the Explanatory Memorandum is a model of its kind—it is clear, thorough and indicates clearly areas of doubt or uncertainty.

There is one area of doubt or uncertainty arising: the effect on SMEs—not as providers of credit but as customers of credit providers. The impact assessment estimates the cost of the measures over 10 years at £336 billion and the benefit at £689 million—an estimated net benefit of £353 billion. However, the impact assessment does not say how this net benefit is distributed. That is my first question: are SMEs net beneficiaries or is all the benefit delivered elsewhere?

The impact assessment also makes it clear that it expects a shrinking of the credit market. It estimates that 9,000, or 20%, of credit organisations will exit the market. It is true that these organisations represent only a small percentage by volume of total credit, but is this lost lending concentrated in the SME sector? That is my second question to the Minister. We know that net lending to SMEs continues to decline. Can the Minister provide some general reassurance that the measures before us will not make the position worse?

The note in paragraph 53 on page 13 of the impact assessment makes the point that the FCA’s most effective regulatory tools and framework to be brought about by these orders will be,

“effective in tackling known consumer detriment occurring in the non-mainstream lending market such as: payday loans, credit brokerage, debt management and home collected credit”.

That is an important improvement and I welcome it, especially as it will apply to payday loans. However, at first reading there seem to be some areas missing from the list. The impact assessment notes in paragraph 25 on page 8, as a rationale for intervention,

“that the market is not functioning as well as it should and the regulatory regime cannot keep pace with the market”.

However, as far as I can detect, no explicit mention is made anywhere in the orders or the Explanatory Memorandums of crowdfunding or peer-to-peer lending. As the Minister knows, these are rapidly growing credit areas, and ones that offer additional opportunities for SME funding. Can the Minister confirm for the Committee that crowdfunding and peer-to-peer lending will fall within the ambit of these orders? I think I heard the Minister say that that is the case for peer-to-peer lending, but I should like to know whether it is also the case for crowdfunding.

Before I conclude, I should like to ask the Minister a little more about the effects of these orders on payday lenders. The Minister has previously confirmed elsewhere that under the terms of the EU e-commerce directive, the UK has no power to cap the cost of payday loans extended by companies based in the EEA and trading only electronically in the UK. However, I notice in paragraph (5)(e) on page 16 of the second order that the authority has the power to prohibit the entry into credit agreements by an EEA authorised payment institution if that institution,

“engages in business practices appearing to the Authority to be deceitful or oppressive or otherwise unfair or improper (including practices that appear to the Authority to involve irresponsible lending)”.

Does this provision apply to payday lenders based in the EEA and operating only electronically here in the UK?

[Lord Tunnicliffe (Lab)]

My Lords, I welcome these two orders. It is the duty of Her Majesty’s Opposition to study secondary legislation and then to oppose it where we find errors and faults, but I have to say that I have not been as successful as the noble Lord, Lord Sharkey, in finding questions to pose to the Minister, so at least my words will give him a little time to collect together his notes on those technical areas. While we welcome the orders, my honourable friend in another place did ask one or two questions which seemed to be answered satisfactorily. As far as I can tell, the orders do their job. With the permission of the Committee, I should like in a sense to celebrate these orders because they represent the last hurdles of effecting the transfer of responsibilities for consumer credit from the OFT to the FCA. Over the past many months, we have all been concerned about the consumer credit market, in particular its grey areas and payday lending.

I, too, have studied all 49 pages of the impact assessment, although I did not find the same inconsistencies as the noble Lord. I did pick up an implication that the resources to be devoted to the area seem to be tripling from around £10 million per annum to £30 million, and I would be grateful if the Minister could confirm the extent to which new resources are being made available for this new activity. What does this represent in terms of resources and people at the FCA devoted to the consumer credit market? Will it involve the transfer of people from the OFT? Will it involve new and perhaps more capable people working in this market? Will there be a change in attitude and culture on the part of those working in this area?

As has been pointed out, there are some detailed areas, but the really serious evil here is the loan sharks, the rogue lenders and the payday loans market. That market is pretty worrying at every level, from the one-person operator through to major organisations. It involves probably some of the most vulnerable consumers in the land, who are people making decisions in very difficult and stressful circumstances. If ever a market needed intelligent, proactive government regulation, it is this one, and I hope that what the Government have designed will do it.

I would be grateful if the Minister could say a few words about how the regulators will be more proactive. The documentation makes the point that the FCA can be forward-looking and create regulations quickly. I would be grateful if the Minister could expand on that and give me some reassurance—in response to a point made by a colleague—that the new unit will be able to strangle products at birth; in other words, will be sufficiently proactive to sweep the market for the emergence of new products and move quickly to kill them before they do the social harm that we know they can do.

One of the aspirations of these changes is to bring rogue firms under control, which I think we all welcome. The problem is that it might increase opportunities for illegal operations. I feel as though I am in a pantomime now and saying, “Look behind you”, because notes are at the Minister’s right hand. To what extent will the unit work with the police where it sees the early emergence of illegal operations and stamp them out before they can create the evil which we know happens in communities under stress?