Financial Services Bill

Debate between Lord Whitty and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Lord Whitty]

My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available—I will not say normally, but if necessary—to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.

I am very mindful of an equivalent sector—namely, energy—where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation—that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

[Lord Sassoon]

My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.

This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.

Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA’s competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT’s response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.

As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee’s recommendation, the noble Baroness will feel able to withdraw her amendment.

Financial Services Bill

Debate between Lord Whitty and Lord Sassoon

Monday 8th October 2012 Lords Chamber

[Lord Sassoon]

There are of course other amendments in the group but for the moment I will just speak to the two government amendments. New Part 12A of FiSMA, as inserted by Clause 25, confers on the regulators for the first time substantive powers in relation to unregulated parent undertakings of authorised persons. These new powers strengthen the regulatory framework by ensuring that the regulator can take appropriate action in relation to a parent undertaking that itself is not regulated but which controls and exerts influence over an authorised person.

Amendment 174ZA extends the meaning of “qualifying parent undertaking” so that the new Part 12A powers can also be applied to body corporates which have a place of business in the United Kingdom. At present, the powers are restricted to a parent undertaking that is a body corporate incorporated in the United Kingdom. There is a risk under the new Section 192B(2), as currently drafted, that some financial groups may be beyond the scope of new Part 12A powers or indeed may engage in regulatory arbitrage and restructure their operations to remove themselves from scope. Left unchanged, it would be possible for a firm to evade the powers by incorporating their parent undertaking overseas while retaining a place of business in the UK. It is important that the powers can be deployed for the purpose for which they were designed.

Amendment 174ZB is a bit of small tidying up of the drafting. As there is only one system of company law in the UK, it is not possible for a body corporate to be incorporated only in “part of” the UK. That is why we are making that second amendment. I beg to move.

[Lord Whitty]

My Lords, I am perfectly happy to accept and support the Minister’s proposals. My two amendments, and I think those of my noble friend Lord Tunnicliffe, attempt at this point to reflect the reality of the changing structure of banking and the potential changing structure of financial services, and their interrelationship with retail. It could go wider than this, but it specifically relates to the phenomenon of supermarkets obtaining banking licences, establishing banking subsidiaries and operating in the banking and financial services area.

This presents significant issues of consumer information and consumer privacy. My first amendment is a simple one. We have, in this Bill, a number of safeguards in relation to financial companies’ relations with their parent company. However, among other things, subsection (4) of the previous Act’s proposed new Section 192B defines a parent undertaking that is susceptible to these protections:

“Condition C is that the parent undertaking is a financial institution of a kind prescribed by the Treasury by order”.

It then goes on to say that those conditions can be changed by the Treasury. However, the reality is that Tesco—I am not particularly having a go at Tesco—would not fall within that definition. Yet Tesco will have a banking operation and has every intention of building on that. My first amendment would therefore delete that restriction, so that a parent undertaking of a financial company could, in fact, be a company of any kind and not simply one which falls within the Treasury’s—from time to time altered—definition of a financial institution.

My second amendment relates directly to the area of potential consumer detriment. Again, I take the example of Tesco. There have been examples in the United States already, so it is not necessarily directed at Tesco; I have a Tesco card myself, as I am sure many other Members of the House do. I would not presume that Tesco would be in a position, deriving data from my Saturday afternoon purchases, to offer to their banking subsidiary indications of my current or potential credit-worthiness. Noble Lords may feel that I do not need that protection, but there will be many who do. The pattern of purchases, particularly for the more vulnerable consumers, can vary dramatically from time to time as circumstances change. Their credit-worthiness can alter if the interpretation of that data is such that the banking subsidiary thinks that they are no longer as credit-worthy as they were last month or last year.

This is an issue of privacy. This is an issue of clarity. It is an issue of confidence that consumers who have quite happily allowed the retail parent company to acquire very detailed information on their purchasing patterns should not have that information used for the entirely different purpose of establishing credit-worthiness and the ability to seek loans, overdrafts or banking facilities from a banking subsidiary. I emphasise this because the change in the structure and interface between banking and large-scale retail and other conglomerates is likely to get larger. In broad terms, the consumer interest benefits from this wider competition and the expertise that it may bring. However, Tesco itself has recognised that one of the synergies arising from its move into the banking sector would be using the club card for credit assessments, and one which, alongside a loyalty scheme, could benefit the banking as well as the retail side of its business. I do not think that that is right. I do not think that the ordinary consumer who goes to Tesco every week would think that it is right. It is, of course, also a facility available to a banking subsidiary of a supermarket which is not available to its competitors, who are part of a purely banking or financial institution.

I hope that the Minister will recognise this problem, and will at least agree that the first deletion is appropriate and to take away the issue raised by my second amendment and come back to us at a later stage, indicating his way of dealing with it. It is an issue which, as I say, is likely to grow in importance and makes hundreds of thousands of consumers vulnerable. I do not beg to move, as the Minister has done so, but I hope that he will take my words into account.