Financial Services Bill

Lord Whitty Excerpts

Monday 26th November 2012 Lords Chamber

Moved by

[Lord Whitty]

90: Clause 26, page 114, leave out lines 30 and 31

[Lord Whitty]

My Lords, here we return to an issue which I raised in Committee. It is what I refer to as the “Tesco amendment”, dealing with a situation where large companies outside of the financial sector are becoming involved in providing financial services and are, increasingly, the parent companies of new entrants to the financial sector. It might just as well have been called the “Asda amendment” or possibly the “Virgin amendment”. The point here is that the welcome provisions in this part of the Bill on extending regulation to cover issues relating to the parent company then go on to be restricted to those parent companies that are financial institutions already. I have yet to hear from the Government a logical explanation as to why that should be the case.

As I said, I welcome the general extension to cover the possibility of regulation in this area. I also welcome the entry of many non-financial institutions—of appropriate competence—into this area to provide a degree of competition that is much needed. Of course, the Government recognise that at some point they might have to extend this to non-financial parent companies. Why not do it now? I do not see a reason for the distinction at this point. Therefore, my Amendment 90 would exclude from the Bill that restriction and make all parent companies equal, and Amendment 91 would therefore logically remove the ability of the Treasury to change those rules at a later stage.

When we proposed the extension to cover parent companies the Treasury had a very logical reason to do so. In presenting the principles behind the draft Financial Services Bill, it said that,

“during severe stress, the different priorities and responsibilities of the board of a parent undertaking relative to the regulated company … can be exposed … the FSA does not have legal powers to require action at the level of the parent undertaking”.

That would mean that a number of options were closed. It therefore planned the extension. It is not difficult to see why the same should not apply to a parent company that is a non-financial institution in the terms of this Bill.

--- Later in debate ---

[Lord Whitty]

My Lords, the Minister is right that there is not a lot new under the sun to be said about this clause and these amendments. I find it slightly odd that, in advocating his own amendments, he is looking for flexibility and usability, whereas in relation to mine, he is retaining a high degree of rigidity. In a situation where there is exactly the same behaviour by a parent company which is a financial institution and another which is not, when the regulator decides that it would need to intervene on the former but not on the latter, the Government may be open to a situation where there is a problem of equality of treatment and, therefore, one of effective competition. I suspect that my learned friends would be brought in if those two things were to happen simultaneously.

I therefore think that the Government are digging themselves a bit of a hole in resisting what I had hoped was a fairly common-sense amendment. However, they appear to be adamant that they have powers to bring in the kind of change for which I am seeking. Therefore, at this stage, I will not pursue my amendment.

Amendment 90 withdrawn.

--- Later in debate ---

Moved by

[Lord Whitty]

106: Clause 42, page 134, line 13, at end insert—
“234GA Complaints and proceedings: collective actions and redress
The Treasury and Secretary of State shall within three months of the passing of this Act shall bring forward proposals—(a) to introduce provisions for collective proceedings before the court in respect of financial service claims made by consumers; such proceedings to provide for both ‘opt in’ or ‘opt out’ procedures;(b) to introduce provision for collective proceedings before the court in respect of financial service claims made by small and medium sized businesses; and such proceedings to provide for both ‘opt in’ and ‘opt out’ procedures;(c) to introduce provision for complaints made by or on behalf of consumers or by or on behalf of small and medium sized businesses to the FCA that a feature, or combination of features, of a market in the United Kingdom for financial services is, or appears to be, damaging to the interests of small business or significant groups of consumers.”

[Lord Whitty]

My Lords, with most of this Bill being about regulators and the whole structure of regulation, I am returning to a proposition which would in due course return some power and leverage to consumers directly. As we just heard from my noble friend Lord Kennedy of Southwark and others speaking on claims management companies, it is often the case that in widespread abuse by financial services operators a common issue between a number of consumers, often a very large number of them, is that the process of seeking any redress is lengthy and complicated if conducted on an individual basis. It is also open to the intervention of the rougher end of the CMC market, which manages simultaneously to exploit the consumers and the providers.

In Committee, I tried to do the Government’s work for them and offered them an easy way of taking on board a system of collective action and redress by consumers. I proposed a fairly detailed set of amendments, which were almost precisely the same as those that were included in the 2010 Bill, that were dropped without debate in the wash-up prior to the general election. At that time, I proposed that various amendments should immediately be adopted by the Government. They had cleared the Treasury hurdle. They had cleared the hurdle of parliamentary counsel and could have been adopted.

The Government resisted that, and I am suggesting that we push it back to the Government to come up with an alternative version. I am giving them more flexibility to draw up their proposals, so this amendment would require them to come up with secondary legislation which would effectively give collective redress and action provisions for consumers in the financial area three months after the passage of this Act. To give them more time would probably not be sensible, given that had these provisions existed before the great PPI scandal, a lot of it would have been resolved by now.

In the last debate in Committee, the Minister referred in rather Delphic terms to a more general approach to collective redress for consumers, which was being considered by his sister department, BIS, in its approach to consumer affairs. He did so in a way which implied that it was probably going to act on that in the near future. It is true that BIS has included collective action and redress in its consultation paper on the consumer landscape. Now, we have before this House a Bill from BIS dealing with enterprise and regulatory reform, which has not a word about consumer protection and certainly none about the ability of consumers to engage in collective redress. This is in marked contrast to the determination rapidly to reduce protection for employees in that Bill. Consumers hardly get a look in.

I come back to the need for particular provisions in this Bill for the financial sector. There is an additional point in this amendment, which was not in my previous amendment, but was in an amendment proposed at that stage by my noble friend Lady Hayter. It is that this provision for collective action should also apply to small businesses. Like individual consumers, they are often faced with mis-selling or other misbehaviour by financial services, which affect a large number of small businesses, but which would be expensive and time-consuming for any individual business to pursue. If there were a framework, whether on an opt-in or opt-out basis, for small firms to take action against the financial institution or institutions, again their detriment could be met much more rapidly. Hence, I am proposing that the Government cover them within this review, with the requirement to report back and present regulations in three months’ time.

I hope that the Government at the very least accept a need to move in this direction either individually in respect of the financial sector, which has some peculiarities, or more generally. If it is to be done solely on the financial services front at this stage, then perhaps they could accept my amendment as it stands and we will in due course receive the regulations. If they want to move more broadly, I would welcome that, but I have received no indication as yet that the Minister’s colleagues are proposing in any very near-time dimension to bring such broader provisions forward. I hope that either the amendment can be accepted or that we will have a firm commitment to broader action in the near future. I beg to move.

[Baroness Hayter of Kentish Town]

My Lords, I support the amendment moved by my noble friend Lord Whitty. To some extent, the third arm of this amendment has been partially agreed by the Government, in that their proposed criteria for designating super-complaints to the FCA include representatives of SMEs—although they wisely exclude authorised bodies from this category. I have two questions to pose.

First, what is the timescale for the designation of SMEs as super-complainants? In his response in Committee, as my noble friend Lord Whitty has just reminded us, the Minister, Lord Newby, said that the Government hoped,

“to publish their response”—

to the consultation—

“before the end of the year”.—[Official Report, 15/10/12; col. 1351.]

Unless the Minister is to forego his Christmas holiday altogether, this is going to stretch even his capabilities, as responses to the super-complaint issue are due only on Christmas Eve. Amendment 106 adds a timescale to the exercise. Perhaps he could either give a definite date or accept the timescale suggested by my noble friend Lord Whitty. There is some urgency to this. The FSA estimates that more than 40,000 interest-rate swaps were mis-sold to small businesses. It is silly for each of them to have to take individual action over this, so only collective cases will satisfy. We see no reason why each individual or firm must make a separate claim. I cannot see why the onus should not be on the banks, which are the major mis-sellers, to write to those to whom they have mis-sold and repay the monies due to them. We understand that some banks have now agreed to do this, but faster action is required. We hear that ominous noise of foot-dragging. Small businesses simply cannot carry this unwarranted expenditure; they need a more rapid remedy.

My second question relates partly also to Amendments 105E, 105F and 105G, which deal with super-complaints with profits. As the Government have moved some of that oversight to the jurisdiction of the FCA, our original request was superfluous and we shall not press those amendments. However, the question remains how either individuals or SMEs can pursue, through their representatives’ use of a super-complaint, market failures where these relate to the bit of the banks’ activity that is under the PRA’s remit.

As noble Lords will recall, the Government have resisted our attempts to have any channel of communication between the Financial Services Consumer Panel and the PRA. Nor will they have access to super-complaints to the PRA and the collective action suggested by my noble friend Lord Whitty. It rather smacks of the banks’ regulator being deaf to alleged failures in any of the banks serving the needs of their customers.

Hitherto, the Government have suggested that all such representations can be made through the FCA, even though it will have no responsibility for PRA areas and even though it will have a wider remit than just the interests of one group of clients. It will anyway be very much at arm’s length from actual consumers. The issue remains of how collective action can be taken, particularly with respect to banks. Can the Minister therefore offer some reassurance that the PRA, in its regulation of banks and with the new Governor in place, will keep the interests of consumers central to its thinking and policy, so that further consumer detriment does not arise?

[Lord Newby]

My Lords, we of course accept that consumers, including small to medium-sized enterprises, should have appropriate access to redress in respect of financial services as much as to everything else.

On collective proceedings in the financial services sector, we are as we said in Committee awaiting the outcome of the BIS consultation on private actions in competition law, which considers introducing an opt-out collective actions regime for competition law. We shall see what the implications may be for the financial services sector. The Government are hoping to publish their response to that consultation around the end of the year.

If the Government conclude that it is appropriate to legislate more specifically for financial services, any proposals must be the result of evidence-based analysis, taking into account the conclusions of the consultation into private actions in competition law, and they must also be subject to proper consultation.

On super-complaints more generally, which were covered by the amendment, I remind the House that the Bill already provides for designated consumer bodies to make complaints to the FCA. This may include representatives of business consumers provided that they are not authorised persons. The Government are already consulting on the criteria that the Treasury should apply when designating consumer bodies for this purpose and have made clear their intention to designate bodies which represent primarily the interests of retail consumers or SMEs as super-complainants. There is no further provision to allow this.

The noble Baroness, Lady Hayter, asked when SMEs would be designated, to which the answer is: by 1 April next year. She also asked about dealing with complaints relating to the banks in respect of PRA matters. The FCA is the lead body. One makes one’s representation to the FCA. As we have discussed many times, there is a raft of areas where the FCA and the PRA have joint responsibility, and MoUs will deal with that. It therefore seems much more logical to have just one body which is responsible for this kind of complaint and then deals with it as it would deal with other complaints, working closely with the PRA as necessary.

The Government agree with everything that has been said about the importance of the issue. We do not reject outright the idea of collective proceedings in the financial services sector; what we do reject is the proposal that we should legislate now on this matter without considering fully the evidence as to what the implications of changing the law would be. The Government have already committed to consider the implications of the BIS consultation for the financial services sector and we do not want to pre-empt that. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I am tempted to reflect that in the difficult, dying days of the previous Administration, the Treasury—contrary to its previous history—was prepared to go ahead of the game in relation to consumers’ rights. Under Alistair Darling, it was prepared to propose in the 2010 Bill, which was attenuated in view of the general election, very substantial provision for collective redress. It is a pity that, under new management, the Treasury is being more diffident and unusually deferential to BIS in this respect. Under BIS and its predecessor departments, all of us who have been involved in the consumer movement know that this issue of collective redress has been kicking around for at least 20 years under various guises and that the department has still not yet come up with a very firm proposition.

Nevertheless, I am glad that the Minister is now saying that we will see the result of BIS’s considerations before Christmas. I hope that we will therefore see these if not in the enterprise Bill that is already here, which would be a very convenient vehicle, then in an early Bill from BIS. Also, because of the—if you like—scandals in the financial services area, it might have been better had the financial services and their regulators moved more rapidly.

I will not take this to a vote tonight. However, I suspect that, if they are not careful, Ministers might regret not having these provisions on the statute book at an earlier date. However, if this is the situation, I beg leave to withdraw and, with this one, wish the Government luck.

Amendment 106 withdrawn.