Mortgage Prisoners

Martin Docherty-Hughes Excerpts

Wednesday 28th June 2023 Westminster Hall

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I beg to move,

That this House has considered mortgage prisoners.

It is good to see you in the Chair, Mr Robertson. I want to begin this vital debate with something of a confession: like most Members, I did not know too much about mortgage prisoners until just a couple of weeks ago. While I understand that many here today will have been working away on the issue for a while and may be members of the all-party groups, I am still in a state of astonishment and, frankly, anger that the situation happened in the first place and has been perpetuated, I have to say, by successive British Governments.

While it may be convenient to lay these problems at the current tired Government’s door—I hope the Minister will take that in the way it is meant—many of the disastrous decisions that brought this about took place under the previous Labour Government and have simply been rolled over in more than a decade of what seems like unbearable mental torture for those who are stuck in this predicament.

Let me thank my constituent Chris Dorman from Duntocher for allowing me to bring this issue before the House and for agreeing to share their story and that of their family so publicly. I am only sorry that in instances like this, we as MPs so often find it difficult to address historic injustices and can only highlight them and hope that the Government of the day will listen.

Before I tell Chris’s story, I want to be clear at the outset about the questions to which I would like answers from the Minister. I think we now need to also ask the shadow Minister, the hon. Member for Ealing North (James Murray), to consider them. Can we have a moratorium on evictions for mortgage prisoners? Can we put a cap on the standard variable rates being offered to victims? Will the Government—and, I hope, the official Opposition—pledge to set up a vehicle to work cross-party for those in closed-book prisons to pivot back into the mainstream market? Those are three fairly straightforward asks, to which the Minister can now take over an hour to find an answer; I may go on for some time. I know that those watching at home, including Chris and his family, will really appreciate an answer.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank the hon. Member for securing the debate, and as the founder and co-chair of the all-party parliamentary group on mortgage prisoners I thank him for the work he is doing on the issue. The last Labour Government introduced a consultation to ensure that there was some protection for people when mortgages were sold on, and those measures were pulled away when the Conservatives came into power. Does he agree that we need to go back to those considerations? I support what he said about the cap on SVRs—the APPG has been calling for a cap of 2% above the base rate.

[Martin Docherty-Hughes]

I thank the hon. Member for that intervention. I will go on to the history of some of this. I hope that the APPG agrees not only about a cap on the standard variable rate, but about the other two issues I highlighted. I would be happy to work with the all-party group in future.

Let me turn to my constituent Chris Dorman. I have known Chris and his family over many years, especially his mum Rose, who was and remains to this day a legend in the history of my home town, Clydebank—a working-class history that is so seldom related or reflected in a place such as this. She was one of the founding members of the first credit union in Scotland, the Dalmuir Credit Union, helping countless families just like the one I grew up in. I was member 507; that takes me back some time.

That is relevant—and I hope the Minister will understand this—because we need to begin any discussion about mortgage prisoners with the firm rebuttal of any idea that these people are bad borrowers who are to blame for their own predicament. Chris comes from a family who know how mortgages work and how people should go about choosing a lender and a product that will not cause problems for them or their family in future scenarios. When he took out the mortgage with Northern Rock in 2003 to buy a flat, I do not doubt that he would have kicked the tyres of the agreement and known where to look for potential pitfalls. Of course, he would not have found any.

Northern Rock was a triple A lender, one of the largest lenders in the country and a fast-growing national presence that still had its roots in the north-east of England. I know about this because I got my first mortgage with Northern Rock at around the same time—and believe me, this is the point where I start to think, “There but for the grace of God go I.” I do not think it will be the last time in this debate when that is my overriding emotion.

In 2007, as Northern Rock crumbled in the bank run that heralded the next year’s financial crash, Chris was forced on to an interest-only plan. Although for many people switching to an interest-only payment is a stopgap because of short-term financial circumstances, for people in Chris’s position it has been the beginning of their problems. That entirely understandable decision has rendered them unable to change their lender, as many of us do these days, and move to a more attractive rate.

Instead, through the actions of the now nationalised Northern Rock, Chris was flung to the mercy of a standard variable rate that began to diverge significantly from the Bank of England’s average SVR. The decision was quite deliberate. During a period when we were all dealing with the most significant global recession for decades, people like Chris were having to come to terms with that extra dollop of uncertainty. They probably did not know it at the time, but what would initially have felt like a short-term inconvenience was turning into an actual prison, even if there were already some organisations sounding the alarm.

Like so many, and some of our own constituents, Chris was forced to persist with an entirely inconvenient and increasingly costly arrangement and unable to switch to a better deal, making a mockery of the idea of home ownership and the free market being liberating for individuals and families. Through the last decade he has been paying the 6% or 7% interest rates that many of us now complain of today.

This is where we begin to see a bit of the societal impact of the policy. The village of Duntocher, where Chris lives, is a fairly normal part of my constituency socioeconomically. It has poverty and wealth; it is not the wealthiest part of West Dunbartonshire. It is a community—it was an ancient Roman site and then a mill town that predates Clydebank itself—that has a lot of small locally owned businesses, which would have benefited from the thousands of pounds each year that Chris and his family were overpaying on their mortgage.

Let us not forget that for well over a decade the UK Government were the ultimate holders of that mortgage, through UK Asset Resolution. I can imagine myself thinking that the Government would not do anything so deliberately to harm the hundreds of thousands of UK residents in this position and that a sensible resolution would eventually be found. As we will see, there were numerous attempts to address the issue through the various Conservative Governments we have lived through so far. It was not a purgatory before things got better. They were about to get worse.

In 2019, UKAR sold a tranche of books, including Chris’s, to a company called Heliodor. He had never heard of it, and with good reason, because it is an entity that neither I nor any of us here could borrow from. It is a vehicle that exists solely to serve the existing Northern Rock mortgages. Although it operates in a regulated market, Heliodor’s ultimate owner, Topaz Finance Ltd, is not a regulated entity and relies on third-party administrators who are regulated by the Financial Conduct Authority in order to comply with its regulations.

However, and significantly in Chris’s case, as Kath Scanlon et al’s report from the London School of Economics points out, the setting of SVRs is not a regulated activity, meaning that a business opportunity for morally ambivalent vulture funds such as Topaz has been created, and people—our constituents—are offered up as hosts for a parasite.

Despite never having fallen behind on his payments, Chris found himself subject to a host of fees and other spurious admin charges. Incredibly, the principal he owed rose by almost £10,000 in a few short years, with no additional lending being offered. That pushed Chris into negative equity, as the amount he owed Heliodor became greater than the value of the flat he shares with his wife.

[Mr Philip Hollobone (Kettering) (Con)]

I congratulate the hon. Gentleman on his speech and on securing the debate. My constituent Valerie has written to me. She is a mortgage prisoner, one of 200,000 across the country. She says exactly what the hon. Gentleman has said about Chris:

“I have been a mortgage prisoner since the initial crash of the market and despite never having missed any payments or been in arrears I am unable to remortgage as I cannot meet the new current affordability rates due to the LTV ratio of my property. I am now paying an almost 8% variable rate.”

Is it not the key point here that mortgage prisoners such as Valerie have done nothing wrong? They have met all their payments and have never been in arrears, but they are trapped. They urgently need relief from the Government.

[Martin Docherty-Hughes]

I thank the hon. Gentleman for his intervention. He is correct, and the Government need to listen and take immediate action not only for Chris, but for the hon. Gentleman’s constituent and the more than 200,000 others who I am sure are in the same predicament.

The cruellest part of this sorry tale of modern Britain is this: as Chris approaches the end of the 25-year term of his mortgage, having been forced into the interest-only plan just a few short years after he began to make repayments, he risks losing his family home of a quarter of a century unless he can come up with the full amount he owes to Heliodor. The aspect I find most galling is the inversion of the principle of home ownership, whereby people have ended up paying what is essentially rent to a vulture fund, which almost certainly knows it will be able to acquire the property at the end of the term.

Topaz Finance will have been licking its lips, I am sure, at a deal that is basically guaranteed to be paid twice: first, through the monthly payments that Chris and his wife have been making, and secondly when Topaz Finance sells their home from under them in 2029, at a healthy profit over what it picked the property up for in 2019.

As the House can imagine, the toll this has taken on Chris has been severe, as I am sure it has been for many of our constituents. Chris is unable to work, owing to the mental and psychological strain the situation has provoked, so it is down to his wife, a nurse, to work all the hours she can so they can stay in their home, although they understand the bitter irony that that is only a temporary respite until the hammer inevitably falls in 2029.

It is up to us as Members of Parliament to make sense of this personal calamity—not only for me and for Chris, but for the constituents of other Members—and to think of the consequences of Chris’s story, with hundreds of thousands of people across these islands potentially affected. It is unthinkable.

In such a situation, how do we even begin to ensure not only that our constituents are protected from the avarice of these vulture funds, but that, somehow, there is some sort of recognition of the years they have lived under ever-increasing pressure? How do we make up for the opportunities missed—holidays not booked, families unable to grow, dreams unrealised? As Chris has said to me, this is essentially a form of legalised loan sharking, although unlike illegal loan sharks, vulture funds such as Topaz Finance do not break your legs, Mr Robertson; they break your spirit.

A small gleam of light has been the dawning realisation among mortgage prisoners that they have been exploited by so many of the actors that we are going to hear about today, and I want to thank UK Mortgage Prisoners for the work it has done, including the group’s most recent report, “Setting the Record Straight”, which helped me to understand that, tragically, the experience of my constituent Chris is very much not unique.

In the second part of my speech, I want to explore the opportunities to avoid this disaster that were missed along the way, and to ensure that the possibility of tens of thousands or hundreds of thousands of mortgage prisoners being put out on the street and coming within the ambit of local councils and social services is very much acknowledged. It is important to cast our minds back to 2008, when Northern Rock was a prime lender and in the top five nationally. The LSE report I cited puts it very well:

“The problem of mortgage prisoners was largely created by the actions of successive UK governments in trying to address the excessively risky lending of the early 2000s. The prisoners…are a legacy of the rapid mortgage market expansion that took place prior to the Global Financial Crisis”.

By now we all know about the plethora of seemingly innovative mechanisms to enable wider home ownership, including high loan-to-value ratios. The banks that offered those novel products, such as Northern Rock or Bradford & Bingley, were household names—well-known brands that did not make people think twice about borrowing with them—and even the then Chancellor of the Exchequer, Alistair Darling, stated clearly in 2007:

“I can tell the House that Bank of England lending is secured against assets held by Northern Rock, which include high-quality mortgages with a significant protection margin built in and high-quality securities with the highest quality of credit rating.”—[Official Report, 19 November 2007; Vol. 467, c. 960.]

When those books were brought under the auspices of UKAR, borrowers could have been forgiven for thinking that all would be well: they were paying their mortgages, and the UK Government would ensure that they were not taken advantage of. However, even then there were warnings, inside and outside Government, about the potential risks of that approach. In 2009, the consumer group Which? told the Treasury Committee:

“Northern Rock’s mortgage business strategy seems to consist of telling many of its existing customers to go elsewhere and coming down hard on those who have got nowhere to go by having a relatively high standard variable rate and a ‘rapid’ move towards repossession.”

Even the Treasury, in the same year, was quite clear about the risks of allowing those unregulated firms to take over the Northern Rock book. It stated in a report that firms not engaging in regulated activity are not bound by the requirements of the FCA regulations, including, importantly, the requirement to treat customers fairly. It said:

“Non-regulated owners of regulated mortgage contracts may seek to maximise margins by raising interest rates and charges, potentially to levels that are unaffordable to borrowers.”

The same document stated, clear as day:

“Such activity clearly has the potential to cause severe harm to borrowers”.

Yet, incredibly, the UK Government carried on regardless.

Despite interest rates falling as the recession bit, that Government-owned bank settled on a margin of 4.29% over base for its SVR—an increase of 205% in its first year of operations. That is a scandal. In doing so, it made the prison absolutely complete, and hundreds of thousands of our constituents paid over the odds for a product they had bought in good faith, without being able to go anywhere else.

Why did that happen? The best explanation I can find is in the UK Mortgage Prisoners report, which says that the UK Government wanted to

“sell the books as soon as possible for as high a price as possible.”

The action group’s report is a damning indictment of the continued failures of Government policy, but it manages to keep the obvious emotional distress caused to its members just below the surface, to devastating effect. In meticulously researched tables, we see in black and white the money that has been lost to our economy from the detriment of keeping the SVR well above the base rate. From my calculations—I stand to be corrected by Chris—my constituent and his family have overpaid by at least £40,000.

If we cannot take away the pain and suffering this issue has caused over the years, we at least owe the victims an answer about why it happened. The LSE attributes it to the general climate created before the 2008 crash, but it is important to acknowledge how deep these roots are, because we are still dealing with so much of the fallout today.

The long tail of that era of neoliberal economics is still pernicious, because it confuses concepts such as taxpayer value with what any of us would normally take it to mean. Taxpayer value, to people like me, is not found in pauperising hundreds of thousands of households. It is not to be found in scraping back every single penny that taxpayers saw spent on ensuring that the economy did not collapse overnight.

Government is not a bank, with shareholders that need to see the principal of loans paid back in full. Government is an institution that is able to intervene in the economy at strategic moments. That is an idea that is slowly coming back into fashion, but I wonder how many of our national assets have found their way into the paws of this type of offshore capital in the intervening 40 years, leaving the taxpayer with all the costs, none of the benefits and absolutely hee-haw value.

The Government share much of the blame, and I am sure that we will hear from others of their myriad failings over the years, but we should take a moment to remember that the policy was conceived and established under a British Labour Government. Furthermore, that Government fully embraced the model of deregulated, neo-liberal economics; they continued the Thatcherite legacy of public assets being valued only where they were on the balance sheet, and taxpayers existed only in the abstract, not as individuals.

It was Gordon Brown—that saint who, we heard last week, could be elevated to the House of Lords—who set up the very FSA that allowed this tragedy to happen. The FSA, in his now infamous words, would herald

“not only light but limited regulation”

of financial markets. However, it will not do Chris or our constituents much good to dwell on the past. As I draw my remarks to a close, let us revisit my three questions for the Minister, which I think the shadow Minister should also reflect on. First, on evictions, as we begin to reach the end of the terms of those who took out 25 or 30-year mortgages at the beginning of the century, let us do what we can to lift the burden that they have carried over the years. I know, from reading briefings, that the Government are concerned about what they call the moral hazard of acting. If these people, in 2023, have not already had their houses repossessed, they must necessarily have kept up with repayments, so there is a strong case for saying that the moral hazard lies in the other direction: companies have been deliberately stringing them along.

Secondly, surely it is natural to put a cap on the SVRs being offered to mortgage prisoners, especially given the general climate of mortgage instability. Our constituents have been coping with high interest rates for a considerable time. We gain nothing from pushing them further into debt, and in the past couple of days, some interest rates have been around 12.6%. Of course, there will be a cost to the taxpayer in the abstract, but this move will be an investment that pays itself back through the cascade of money into our local economies, instead of into the pockets of offshore vulture funds. The day of balance-sheet economics needs to end.

I understand that an amendment to the Financial Services and Markets Bill was put forward in the other House by the co-chair of the all-party parliamentary group. I would be interested to hear whether the promise that the Government made when that amendment was withdrawn, to meet mortgage prisoners, has been fulfilled. The Minister knows a lot about that Bill.

Finally, the Government owe it to mortgage prisoners to find a way for them to help themselves out of this mess. They should look into providing a vehicle that allows mortgage prisoners to pivot back into the mainstream market. The first suggestion of the LSE report is that there should be free, comprehensive financial advice for all victims; almost 200,000 people should be contacted individually to help them navigate their way out of the quagmire that they find themselves in. As I said, it gives me no pleasure to conclude that it appears that there is nothing that we can do to make up for what UK Mortgage Prisoners calls the

“extortionate interest rates, severe financial restrictions and mobility and mental & physical issues caused by this Government-made scandal.”

However, that does not mean that we should not try. I hope that the Minister and the Government can see from the interest in today’s debate that they now have a chance to do what they can to make things right.

--- Later in debate ---

[Chris Stephens (Glasgow South West) (SNP)]

It is a pleasure to see you in the Chair, Mr Robertson. I congratulate my good friend and comrade, my hon. Friend the Member for West Dunbartonshire (Martin Docherty-Hughes), on securing the debate and on giving an excellent outline of the position of so many people who are caught up in this scandal. I compliment the hon. Members for North Norfolk (Duncan Baker) and for Feltham and Heston (Seema Malhotra) on their excellent speeches, too.

As others have said, mortgage prisoners are people who cannot switch mortgages to a better deal, even if they are up to date with their payments. It is estimated that up to 40,000 people in Scotland are currently in the category of mortgage prisoners. Most mortgage prisoners have a mortgage in a closed book of an inactive firm, which means that the mortgage is held with a lender that can no longer make mortgage contracts because they are not authorised to do so. At the same time, regulators and lenders are imposing more stringent criteria on borrowing to help to prevent another financial crash, and many people are unable to meet the new conditions. As a result, they are unable to move to other deals, even if they would pay less by doing so.

Stakeholders including Martin Lewis and the UK Mortgage Prisoners action group have consistently criticised the Government for not taking action to help mortgage prisoners. Earlier this year, a report produced by the London School of Economics and funded by Martin Lewis said that the UK Government had made a surplus of £2.4 billion from the sale of mortgage books. It offered costed proposals that it argued would meet Government criteria for helping to solve the problem.

As we know, there have been previous parliamentary debates on the issue. In 2021, the Lords agreed an amendment to the Financial Services and Markets Bill that the Commons voted against during ping-pong. The Government argued that it would be an unacceptable and unfair intervention in the mortgage market; as a result, the Lords agreed to remove the amendment. The chief executive of the FCA told the Treasury Committee in May 2021 that further reforms to help to resolve the situation were up to Parliament. In March 2023, Lord Sharkey introduced an amendment to the Financial Services and Markets Bill that was identical to the one passed in 2021, but he agreed to withdraw it when the Government promised to meet stakeholders to discuss the proposals in the LSE report. I hope the Minister will update the House on where those discussions are.

It is abhorrent that people are at risk of losing their homes as a result of being mis-sold their mortgages prior to the financial crash. Homeowners across the UK are being hit by soaring mortgage rates, but mortgage prisoners are being hit even harder.

[Martin Docherty-Hughes]

My opening speech explained why we got here. Does my hon. Friend agree that an addiction to a neo-liberal economic model is to blame for the treatment of mortgage prisoners?

[Chris Stephens]

I agree. There is also a poverty premium that we need to discuss, which I will come to shortly.

As Rachel Neale from the UK Mortgage Prisoners campaign group has noted, their interest rates have gone from 4.5% all the way up to 9%, 9.5%, 10% and above. A number of these homeowners have been trapped—

--- Later in debate ---

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Robertson.

As we have heard, this debate on mortgage prisoners takes place in the context of wider concerns about mortgages, as mortgage payers are being hit by increases in interest rates. People who have done the right thing by saving for a deposit and then buying a home now face their payments going up by hundreds of pounds a month through no fault of their own. The interest rate rises are affecting millions of families with mortgages, both those with a variable rate deal who are impacted month on month and those with a fixed-rate deal that has recently expired or is about to do so. The impact of the rises is being felt beyond mortgage payers and their families, as private renters are also often suffering an increase to their rent as a knock-on impact of higher interest rates.

Today’s debate focuses on a particular group of mortgage payers: mortgage prisoners, who face the impact of the recent increases in interest rates on top of the historic uncompetitive rates of the deal they are on. We all know how much fear and hardship rising mortgage payments can cause, so I commend the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) for securing the debate. I also commend the work of Rachel Neale and other campaigners on this issue. I listened very carefully to the hon. Gentleman as he set out his points and talked about his constituent Chris and his family. I welcome the contributions of other Members, including the hon. Member for North Norfolk (Duncan Baker) and my hon. Friend the Member for Feltham and Heston (Seema Malhotra), who mentioned her constituent Mr Masood. They set out much of the detail of the situation facing mortgage prisoners.

As we heard, there are around 200,000 mortgage prisoners in the UK. That is the number estimated by Money Saving Expert, and it aligns broadly with the calculation by the Financial Conduct Authority of around 195,000 mortgage holders in closed books in 2021. Mortgage prisoners face being hit by the same interest rate rise as other mortgage payers, but without even having had the option to move to a cheaper rate deal in the past. We know how much stress, anxiety and hardship soaring mortgage payments cause to so many people across the country. The debate has given us a chance to focus on how particularly acute that is for mortgage prisoners who are already stuck on an uncompetitive deal. I very much look forward to hearing the Minister’s response to the points raised by so many Members about mortgage prisoners.

I would also like to take this opportunity, briefly, to once again urge the Treasury to follow through on the broader plan we set out in recent days to help mortgage holders through the difficult times that so many are facing. Action for all mortgage payers is desperately needed, as banks are withdrawing mortgage deals and the average household is facing a hike of almost £240 a month on their mortgage. Across the UK, 13 years of economic failure has left us exposed. We have the highest inflation in the G7, and UK households are paying almost £100 a month more in mortgage payments than those in other European countries. Millions of households need help now, so it is deeply frustrating that the Government are refusing to make measures to help households mandatory.

[Martin Docherty-Hughes]

I am going to challenge the shadow Minister on some of the points I made earlier. Do his Front Benchers agree that we need a moratorium on evictions and a cap on standard variable rates? Will he pledge to support a cross-party vehicle for those on closed books to pivot back into the mainstream market—yes or no?

[James Murray]

I thank the hon. Gentleman for setting out those points, and I add my voice to the call on the Minister to set out the Government’s position. We are pushing for a wider response to help mortgage holders across the piece, but the Government are in a position to respond to the hon. Gentleman’s points.

I want to use this opportunity to talk briefly about the wider impact of the mortgage rate increases on mortgage holders across the market. The plan that we set out in recent days would require lenders to allow borrowers to switch to interest-only mortgage payments and lengthen the term of their mortgage period, reverse support measures when the borrower requests, and put in place more protection for mortgage holders from repossession proceedings. We would instruct the FCA to ensure that mortgage holders’ credit scores are not affected.

I also want to focus briefly on renters, who need to be part of the conversation about mortgage holders. They are being impacted by the increase in mortgage rates, and the Chancellor did not mention them on Monday. Will the Minister take this opportunity to refer to them?

The rise in interest rates as a result of the UK’s being particularly exposed to inflation will see us paying more on our mortgages than our European neighbours. That undermines the fundamental security that families across the UK need. We therefore urge the Government to follow our plan so that people across the UK are protected. I look forward to the Minister’s response to the points we have made about mortgage prisoners.

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure to see you in the Chair, Mr Robertson. I congratulate the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) on securing the debate. I thank all Members for their contributions, including my hon. Friends the Members for North Norfolk (Duncan Baker) and for Kettering (Mr Hollobone) and the hon. Member for Feltham and Heston (Seema Malhotra), whose chairwomanship of the all-party parliamentary group on mortgage prisoners does so much to increase the standing of Parliament.

Our primary role, as we represent our constituents, is to use our voice to ensure that nobody feels that they are being forgotten. Today’s debate is proof of that. There are no easy answers, but this is Parliament at its finest, as it uses its powers to compel Ministers to come and account for themselves. I am grateful for the work of Rachel Neale and others in the Public Gallery who are continuing with this campaign.

I am humble about the potential failings of Government and regulators. It is not my role to sit here and mouth platitudes. I am not going to say that everyone always gets it right, and I cannot offer false hope. There is a lesson for us all in what we saw with the Horizon scandal, involving postmasters: every human process is fallible. As Minister, I will continue to keep an open and inquiring mind on such issues.

[Martin Docherty-Hughes]

I will make the same points that I made to the shadow Minister. In the interests of openness, will the Minister consider at some point a moratorium on evictions and a cap on the standard variable rate? Will he pledge to support the creation of a cross-party vehicle to enable closed books to pivot back into the mainstream market?

[Andrew Griffith]

I was just starting, but I will try to address the points that Members have made in the debate, including those made by the hon. Gentleman.

The Government and I recognise the anxiety that people in general have about mortgages, and we will use the tools at our disposal to limit the rise in rates. I will leave the general points and address the specifics about what we are debating today. We spent a lot of parliamentary time yesterday debating the new mortgage charter, but this is clearly a different debate—about those who have been in this situation for a long time, such as the hon. Gentleman’s constituent Chris and the constituents in Feltham and Heston and North Norfolk.

--- Later in debate ---

[Andrew Griffith]

I thank the hon. Lady for her intervention. I have met her and campaigners previously, and I am happy to undertake to continue to do so. The best way to find solutions is by working together. I would caution that everything I have seen so far tells me that there is no one-size-fits-all solution. There are a very large number of categories. There is a temptation to aggregate to the largest possible number, but the FCA’s analysis slices it down into more detail and recognises that there are varied circumstances in terms of why people have reached the position they have. I would love to hear more from the hon. Member for West Dunbartonshire about his constituent Chris’s circumstances. He told us that the mortgage was taken out in 2003, which was well before the change in Northern Rock post-2008. By 2007, it had already moved into an interest-only mortgage.

I am a data-led Minister, and as we unpick the data we often find co-mingled in these issues, understandably, the human stories of people who are vulnerable, have fallen on hard times and have been affected by the personal tragedies that all of us as Members hear in our constituency surgeries every week. But those are, to some degree, disconnected from their particular choice of mortgage and are circumstances that affect the wider taxpayer population.

[Martin Docherty-Hughes]

I need to come back on that point. The only tragedy here is that my constituent and his wife will lose their home in 2029 if this Government and any future Government do not get their finger out.

[Andrew Griffith]

I hear the hon. Gentleman. As I say, one of the ways to explore solutions is, I would counsel, to look at the individual circumstances and see what remedies, if any, there are, based on particular cohorts.

--- Later in debate ---

[Martin Docherty-Hughes]

I thank all Members here today for participating, and I thank the Mortgage Prisoners action group—some of its members are in the Public Gallery. Most importantly, I thank my constituent Chris. I commit to him, his family and so many other mortgage prisoners to continuing to campaign for them and their demand for justice. I leave the last word to the Mortgage Prisoners action group to set the record straight, given some of the points that have just been made:

“From research within the UK Mortgage Prisoners Group of 4,200 members less than 10 have benefited from the modified affordability criteria introduced in November 2019. It has, by all measures, been a failure. The Money and Pensions Service, who were introduced as the organisation for mortgage prisoners to go to for advice and clarification about being a ‘mortgage prisoner’ have in recent communications revealed that out of 445 client calls, 66% did not fit the criteria to access the better deals…and they are aware of only 36 people who have successfully remortgaged.”

In the group’s words,

“From this failed attempt at a market led intervention it is clear it is time for the Government to stop pretending that the markets can offer an adequate solution for mortgage prisoners.”

I hope that the Government are listening.

Question put and agreed to.

Resolved,

That this House has considered mortgage prisoners.

Mortgage Charter

Martin Docherty-Hughes Excerpts

Monday 26th June 2023 Commons Chamber

[Jeremy Hunt]

The hon. Lady is absolutely right to talk about the impact on renters because of the high prevalence of buy-to-let landlords and the pass-through effect. That is an area we are looking at in great detail, and I will write to her with some of the things we are looking at and planning to do.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

The Chancellor said in his statement that

“this new measure means that people will be able to opt for a lower-cost approach for six months with full reversibility, giving them the peace of mind of knowing they can try out a new approach and still change their mind later.”

Going back to mortgage prisoners, why does he not know about the assistance he is able to give them as Chancellor of the Exchequer? Why does he not have an answer to that question, given the statement he has just given?

[Jeremy Hunt]

It is a very complicated issue. I have said I will write to the hon. Member for North Shropshire (Helen Morgan), and I am also happy to write to the hon. Gentleman. If he is saying that we are doing nothing to help people who are struggling or worrying about mortgage repayments, I urge him to read the statement in full.

Cryptocurrency Regulation

Martin Docherty-Hughes Excerpts

Tuesday 13th June 2023 Westminster Hall

[Dr Cameron]

I thank the right hon. Member for his valuable contribution. I totally agree. I saw some research from PitchBook last month that suggested that since the EU produced its regulatory framework on markets in cryptoassets—MiCA—investment in the EU has increased substantially. With a regulatory pathway over the next 12 to 18 months at the maximum, the UK could harness a leadership position in this sector. That will be essential because of the digital revolution that is happening. The next generation is a digital generation already. This is the way that things are moving in the world, and the UK must be at the forefront. I am pleased that the Minister is harnessing his skills and endeavours to ensure that happens.

We heard that without comprehensive regulation there are considerable risks in the industry, particularly regarding consumer protection, economic crime and financial stability, which I will speak about later. While there are clearly legitimate concerns about the potential risk posed by cryptocurrency and digital assets, it is important to acknowledge a number of positive use cases that show the potential benefits of the new technology.

One such example is the use of cryptocurrency at the frontline of the conflict in Ukraine. Many may not know this, but following the Russian invasion, the Ukrainian Government appealed for cryptocurrency donations and received millions of dollars in cryptocurrency to support military and humanitarian efforts on the frontline. Ukraine’s Deputy Minister of Digital Transformation, Alex Bornyakov, has said that cryptocurrency has been “essential” to Ukraine’s response to the Russian invasion. I am delighted to welcome Minister Bornyakov and his team, who are in the Public Gallery. We are delighted to have them here today.

Our inquiry heard that the growth of the sector suggests that cryptocurrency is here to stay. The latest research by the Financial Conduct Authority shows that cryptocurrency ownership has almost doubled in the last year, with almost one in 10 people surveyed owning cryptocurrency in 2022. That highlights the need for proper, clear regulation to protect consumers and support the industry’s growth in a reasonable way. As countries around the world move quickly to develop regulatory frameworks, we feel that the UK must move within the next 12 to 18 months to harness the industry’s potential in order not to lose out to other jurisdictions.

Throughout our inquiry, we heard that there are potential barriers to the UK’s realising its vision, which we set out in the report. We heard that the process for cryptoasset businesses to enter the UK is very lengthy, with limited engagement at times, and that many businesses ultimately choose to invest outside the UK. While the Government have said that they are open for business and for companies in the sector to set up and scale up, we heard that that has not been the experience of many companies seeking to obtain licences to operate in the UK. They have seen very lengthy delays and, in many cases, had their applications rejected. That is fine, because we do not want a race to the bottom, but it often happens without a clear explanation and with limited communication throughout the process.

To date, only 41 firms have been approved to operate in the UK. Will the Minister say what more the Government can do to ensure that legitimate and responsible firms that want to set up and scale up here are able to do so? What steps are the Government taking to ensure that regulators have the resources they need to deliver on their responsibility to process applications?

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

It is good to see you in the Chair, Mrs Harris, and I congratulate my hon. Friend on securing the debate. On regulation, my hon. Friend mentioned risks, and does she agree that the Government need first to admit that when it comes to crypto there is a lot of risk? We know there is a lot of risk—it is called fraud, so fraud regulation should be used in the first instance before they introduce other regulation. There needs to be a recognition that fraud is fraud, whether it is related to crypto or anything else.

[Dr Cameron]

I thank my hon. Friend for raising those important issues. There is a section in my report on fraud and scam risks to consumers, so he has pre-empted the latter part of my speech, but I will cover his points in full.

Another area of concern is access to basic financial services. To be a hub of cryptocurrency—of innovation, scale-ups and start-ups—companies need to be able to open a bank account and pay their employees. The inquiry heard that firms were struggling to secure access to UK banking services. A high proportion of banks have refused to provide bank accounts to digital assets firms, even when those firms are regulated and licensed to operate in the UK. In addition, just in recent months, a number of major banks have also announced limits on transactions, making it more difficult rather than less.

Such services are absolutely necessary for companies to operate regulatorily compliant businesses. The inquiry heard that that could be one of the single biggest barriers to growth and innovation for the UK. There are concerns that this could fundamentally undermine the Government’s ambition for the UK to become a global cryptocurrency hub and could be a barrier to growth and innovation in the digital sector.

I recently chaired a roundtable with the industry to hear more about their concerns. What more can the Government do to help find a way forward and to ensure clear pathways for firms to access fundamental banking facilities when they are operating legitimately and robustly within the guidelines? Will the Government consider using their powers to help facilitate meaningful dialogue between the banking and digital assets sectors to find a way forward that works for both?

We also heard strong support for the Government’s current approach of regulating cryptocurrency in line with financial services regulations; when we look at the research and the details, we can see that that offers the best and most robust protections for consumers. In that sense, my report supports the Government’s position on financial services regulation.

There is another issue. I worked in the health service and I am keen that people who make gains in the UK should pay their taxes. A regulatory framework in financial services enables the Exchequer to collect taxes, as opposed to using the gambling regulations, which would not allow for that. It is also important that the UK sets regulations within financial services to position itself in collaboration with other jurisdictions internationally and rather than appear an outlier by using other regulatory frameworks.

Our inquiry heard serious concerns about the risks to consumers from fraud and scams associated with the sector. As with all new and emerging technologies, the sector has the potential to be exploited by criminals. We heard that given the rapid pace of growth and consumer adoption, the risks in this area cannot be ignored, particularly if the UK wants to position itself as the global home of investment. Consumer protection measures must be at the core of everything that the Government do. We must mitigate the risks associated with new developments in the sector.

Research from the FCA in 2021 showed that overall public awareness and ownership of cryptocurrency had increased, but it also showed that

“the level of understanding of cryptocurrencies is declining, suggesting that some users may not fully understand what they are buying”.

Consumer research by the Financial Services Compensation Scheme highlighted the low levels of understanding and the need for much greater financial education. Industry and the Government must partner to help raise awareness. We want a joined-up and co-ordinated approach, including industry, regulators, law enforcement and the Government, to clamp down on scams.

Before I conclude, let me briefly mention that the Government are making great strides with the consultation on a central bank digital currency, and we support the progress being made. I have also heard about improvements throughout industry on the sustainability of bitcoin mining and so on. That is very important because we must realise that we are in a climate crisis, and all innovations and new technological developments should contribute to net zero.

For our report, we heard about the need for a joined-up, co-ordinated approach across all Departments, and we have said that Government might consider the appointment of a crypto tsar, who could help to co-ordinate across Departments and support the Minister to ensure a consistent approach. Will the Minister update the House on the Government’s vision for the UK to become a global hub? I realise that yesterday the Prime Minister made a very important speech that contributes to the debate and I would be delighted to hear what more we can do, as the all-party parliamentary group, to support the Minister in his endeavours. We feel that things have been extremely positive, but there is a need to move at pace within the next 12 to 18 months.

--- Later in debate ---

[Andrew Griffith]

I pay tribute to my right hon. Friend for the points that he made about how important it is that we lean into this space. He used the excellent and apposite example of fintech—a flourishing industry, for which the UK is genuinely one of the leading centres in the world. I share his concern about the availability of bank accounts. As he understands—I am sure he would not wish it otherwise—that is a commercial decision for organisations, but to the extent that the regulatory framework, or indeed the regulatory culture, is a contributing factor, Parliament will bring cryptocurrency into the regulated domain and decide that it is a lawful activity that could reap many benefits for the United Kingdom. It would, of course, be a concern if those who take part in this lawful and well-regulated activity were unable to procure bank accounts, so I can undertake to keep a close eye on that. I do not plan to make an immediate intervention, but he and other colleagues have raised the issue, as has the APPG. I will undertake to keep a close eye on it, and I am open to hearing examples of where people cannot open bank accounts.

The hon. Member for Strangford (Jim Shannon) has left the room, but I can give him the assurances he seeks. As a proud Unionist, it is a delight to have such a diverse set of representatives from across all parts of the Union. It is wonderful to have contributions from all parts of the Union today, but financial services is a reserved matter, and the Treasury and Parliament will bring forward the right regulations. The regulators have hitherto been clear about some of the risks in this domain, and we seek to strike the appropriate balance between not regulating and introducing appropriate regulations while recognising the potential consumer harms and making sure that we have effective, clear, proportionate and timely regulation. Those seem to be entirely desirable attributes.

[Martin Docherty-Hughes]

I am afraid I am going to have to challenge the Minister on his point about regulation. We already have regulation, which he and I have talked about, especially in Committee on the Finance (No. 2) Bill. Pretending that we did not have levers for a technology that has, in its tech section, been around for 30 years is, quite frankly, pie in the sky. When will the Government implement the existing regulation around fraud to deal with some of the crypto bros we have all been talking about for years?

[Andrew Griffith]

Fraud sits separately as part of criminal law. Fraud is fraud, which is a long-standing offence. I am sure the hon. Member has studied in detail the Government’s most recent fraud strategy, which is excellent, and I would be happy to introduce him to the Government’s recently appointed fraud tsar, my hon. Friend the Member for South Cambridgeshire (Anthony Browne), who will redouble the Government’s focus on tackling fraud.

On regulation, the hon. Member for West Dunbartonshire (Martin Docherty-Hughes) will recall that we recently passed secondary legislation covering cryptoasset financial promotions, which has now been passed by both Houses of Parliament. The regulators are working on its implementation, which will happen later this year. Importantly, it will once again bring the domain within the realm of the regulators we seek. I should say that the Government have no plans for a crypto tsar, but I undertake to champion the sector, quite rightly, in my role as the Economic Secretary, because I am responsible for financial regulation in the UK.

Given the potentially vast benefits of cryptocurrency, it is right that the Government are leaning forward and taking proactive action to harness the opportunities. I recognise the balance struck in the all-party parliamentary group’s report. I also agree that the UK must show early leadership within this internationally competitive sector, which is why we are working flat out to give clarity and to implement the framework as quickly as possible. I welcome the offer of support from the hon. Member for East Kilbride, Strathaven and Lesmahagow—it is a dialogue that we should continue—and I welcome the work of the all-party parliamentary group. I have regularly engaged with the cryptoasset sector. Rather than set up a single taskforce, I am regularly having multiple engagements to try to move things forward.

Fellow parliamentarians have suggested that cryptoassets are akin to gambling. I refute that. That is not the Government’s position; the right bodies to regulate them are the financial regulators, with their deep expertise and understanding of the issues such as how to ensure that markets are fair and how to protect consumers. They have much greater resource. That is no reflection on anyone, it is simply an important fact.

Importantly, industry can see that the UK has clear and ambitious plans for cryptoassets. I was thrilled to welcome one of the world’s leading tech investors, Andreessen Horowitz, which has decided to open its very first international office—its first outside silicon valley—in the United Kingdom. I hope that it blazes a trail that many others follow, and that reaches into all parts of this wonderful United Kingdom because it is about much more than simply London and the south-east.

I hope that I have made it sufficiently clear that the Government want to be a leader in this space and on the opportunities for growth that it can bring to the UK economy. In my view and that of the Government’s view, the best way to do that is to continue to develop a comprehensive regulatory regime that will create a safe environment to encourage innovation while managing the risks. I look forward to continuing discussions with parliamentary colleagues on this important agenda.

Question put and agreed to.

Digital Pound

Martin Docherty-Hughes Excerpts

Tuesday 7th February 2023 Commons Chamber

[Andrew Griffith]

My hon. Friend makes two important points. The first is about the long-term nature of this Government, whose focus on delivery extends to the Prime Minister’s organisation of Departments to ensure that they deliver the outcomes that the British people expect.

My hon. Friend also highlights the importance of financial education. I can commit that, as part of the national dialogue on this important issue, we will give thought to how we ensure that we educate our citizens to prevent them from falling prey to the terrible financial scams that people are trying to perpetrate in the financial system today.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I declare non-pecuniary interests as chair of the all-party parliamentary group on blockchain and as a vice-chair of the crypto and digital assets all-party parliamentary group. I am glad to see the co-chair, the right hon. Member for East Ham (Sir Stephen Timms), in the Chamber.

The Minister will know that I led the first debate in this House on cryptoasset regulation; I think he was the Minister who responded. Central bank digital currencies played a major part in my speech, so I welcome the opportunity for a consultation. For all the bad press that cryptoassets have—alas, justifiably—received, there exists an undeniable opportunity, as I am sure he will appreciate, for CBDCs to create an accessible, reliable store of value using the principles of distributed ledger technology. Will he elaborate on the aspects of financial inclusion he hopes to bring forward to ensure equal access to the CBDC for the most digitally excluded of our constituents, not just for the crypto bros?

[Andrew Griffith]

I thank the hon. Member for his contributions to the ongoing debate. I have said that there is an opportunity for us to design in financial inclusion; that is one of the advantages of consulting early and of building a consensus across the House on a subject as important as our nation’s currency. He is quite right that it needs to be accessible and reliable as a store of value; the opportunity for it to sit side by side with cash and with the existing bank and digital payments system should give us the ability to drive financial inclusion outcomes.

Non-domicile Tax Status

Martin Docherty-Hughes Excerpts

Tuesday 31st January 2023 Commons Chamber

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I am the MP for West Dunbartonshire and I do not think many of my constituents are non-doms, but I do know that they are struggling, as so many across these islands are, with inflation, the cost of living and, of course, the economic catastrophe that is Brexit.

My constituents cannot actually take advantage of non-dom status to reduce their financial exposure to the taxman, but they are certainly the types of people that HMRC will come after if they miss a self-declaration or other arbitrarily imposed deadlines, which have done so much to convince people that the tax system is rigged in favour of the better off.

There are also implications in preserving non-dom status and we need to think more about what the status means for our social contract. Maintaining this dual system, whereby there are convenient opt-outs for so many who are of means, when the system seeks to be unnecessarily punitive to those who are not of means, causes the very foundations of our society to crumble. At least from my perspective we can see clearly that there is one rule for them and one rule for us.

Tax is one of those things that can quite quickly cut to the core of our political outlook. There are those of us who see tax as part of the fundamental glue that holds our society together. Many others deny society even exists. Each to their own and, to paraphrase Donald Trump, only stupid people pay taxes. I can say unequivocally that I and my party believe the opposite: if you are lucky enough to be able to pay tax, you should pay tax when you are able.

Another practical step would be to stop doling out honours to party donors. I must declare that I would abolish every honour, but let us accept that the Government and, I am afraid, even the loyal Opposition, agree with the honours system. We all know that they have been very fond of doling them out over the years. The reality is that the British establishment will not abolish them but, on that basis, let them give gongs to the folk who pay the most tax every year. I believe there was even a story in the London Times the other day about such folk. That alludes to the idea that we should create positive incentives for paying tax, instead of simply making it about taking away loopholes for the wealthy.

Let us be transparent. Let us make all our tax records publicly and freely accessible, as they do in Norway. The £3.2 billion that the LSE survey found is a drop in the ocean in terms of public finances. But if the super-rich do not want to live in London, I am sure that Londoners would say, “Cheerio, ducks, don’t let the door hit you on the way out.” If their commitment to this political state is that thin, I am sure we all agree that they will not be missed. If tax were the prime consideration for many of them moving to these northern latitudes, they should have gone the whole hog and moved to the Isle of Man or Jersey. Indeed, it has even been noted in the press recently that some in the other place may have even sought sanctuary in Manx and Jersey for the very purpose of possibly not paying tax—or was that Honduras?

I am grateful to people such as Carol Vorderman for speaking out on this matter and bringing it into the public discourse. Carol, keep going. People who use the system to not pay tax in this way are thieves. They are not standing up against the big state; they are selfish, arrogant and inextricably linked to the establishment. They are this state.

Wagner Group: Sanctions Regime

Martin Docherty-Hughes Excerpts

Wednesday 25th January 2023 Commons Chamber

[James Cartlidge]

My hon. Friend has expertise as a former sanctions Minister. Obviously, I cannot speak for the United States Government but only for ours. I do not have the exact figures, but I will look into it and write to him. To be absolutely clear, I stated a fact when I said that decisions specifically on legal fees under the sanctions regimes are routinely taken by senior civil servants. I said that I was not aware of any case where the Minister had taken a decision. But under our constitution, I am standing here because, ultimately, Ministers are responsible for Department and Government policy. Nevertheless, it is entirely right to make a point about how these things work operationally. As I said, that is correct. It is a delegated framework for decision making.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

It seems that the Wagner Group is yet another example of the litany of disaster that sustains what seems to be Londongrad. On the back of this appalling situation, can the Minister update the House on when the British Government will not only introduce legislation on limited partnerships but bring about the review that he talks about?

[James Cartlidge]

The hon. Gentleman talks about Londongrad; he knows that we are taking extensive measures on economic crime. Let me say to the Members of the Scottish National party who come every time and lecture us on the sanctions regime and so on that the greatest gift we could give to Putin would be for this country to engage in unilateral nuclear disarmament. It is the most extraordinary position to be lectured by the SNP on standing up to Russia, because if we took its advice and adopted its policy, we would undermine NATO and all our efforts to defend ourselves.

Financial Services and Markets Bill (Ninth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

We know that we have hit financially difficult times for young people. They need to be fully aware of the situation. The idea that people have started to use buy now, pay later to pay food bills is absolutely chilling. This cannot be an unregulated a form of credit, just because it is new or because it does not really impact on older people or people likely to be Members of this House.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I rise to support the new clause moved by the hon. Member for Kingston upon Hull West and Hessle.

Some things do not change. The technology might, but the need for continuation of consumer protection does not. I heard Members talk about parents using buy now, pay later. I remember buying a sideboard with my sister in the ’80s using the old-fashioned financial system of paying money every week—that took a long time to pay back. That reality does not change, and this form of credit is now happening with single items, whether they be trousers or shoes, or make-up, which raises a whole range of diverse issues. We cannot lose sight of the fact that most people who might utilise the service in my constituency might not know that they do not have the appropriate consumer protections. The SNP will support the new clause if it is pushed to a vote.

--- Later in debate ---

[Martin Docherty-Hughes]

The Minister talks about how he wants the impact of closures to be understood in the decision-making process. Understood by whom? The banks are telling us why they want to close their branches: they are saving money. The FCA is saying, “The banks are closing their branches to save money.” Our constituents know what it means to lose a bank branch. There is nothing new here. We understand why banks are closing their branches: they want to save cash. They do not want to continue a local service for our constituents, so what does the Minister mean by “understood”? Understood by whom—the banks, the FCA or our constituents?

[Andrew Griffith]

Ultimately, the banks are downstream of the widespread issue that is the change in consumer behaviour. We have heard both in evidence and in comments made in Committee that 86% of transactions are now digital. The use case of going to a bank branch has evolved rapidly in my lifetime and the lifetime of all Committee members. That is the ultimate macro issue that we are dealing with. Is that issue understood? I think it is.

Solutions could be brought to the table, in terms of both a greater toolkit for the FCA and greater prominence and scrutiny of the FCA as it uses the existing toolkit and the new powers in the Bill. There are also industry-led solutions, which having perhaps started slowly are increasing at greater pace. Proportionality is about giving those developing trends time to mature to see what models can be developed, while accepting the underlying need for action.

I therefore ask the hon. Member for Hampstead and Kilburn to withdraw the motion.

--- Later in debate ---

I am interested to hear what the Minister has to say about this. I certainly hope that he will read the Select Committee’s report and that, as he spends more time in his role, he will consider how his duties impinge on the systemic structure of this problem, as well as what he and his anti-fraud counterparts in other Departments can do. If the Minister reads their oral evidence to the Select Committee, he will find that they were very frustrated by how ineffective what they had managed to do had proven to be. We hope that this Minister will get to the stage of bearing down on this problem and turning the tide of fraud that is engulfing our entire system and having a detrimental effect on our constituents.

[Martin Docherty-Hughes]

If the hon. Member for Hampstead and Kilburn presses the new clause to a vote, I will certainly support it. I declare an interest as the chair of the all-party parliamentary group on blockchain.

To build on what the hon. Member for Wallasey said, in subsections (2)(f) and (3)(d) and (e), we have a huge opportunity to help the Government by ensuring that there is a strategic overview of how fraud impacts on the technology sector. The problem is not necessarily the technology but the people utilising it. Distributed ledger-type technologies, for example, are used to access investments and assets, but those who are supposedly selling assets are taking advantage of technology that a lot of younger people use.

Critically, I hope that the Government hear the concern that there might be no strategic overview of how such technology can be manipulated. The tech is fine, but we must consider that manipulation—particularly of closed distributed ledger technologies and closed blockchains—and how it can block out the people who actually buy into those systems. I hope that the Government hear what has been said on the new clause.

[Emma Hardy]

I support the new clause. I refer the Minister to the evidence given by Mike Haley, the chief executive of CIFAS. In respect of fraud, he said:

“Absolutely, there should be a national strategy, and prevention should be at its core.”

He said that the Home Office was looking at

“publishing a national strategy; it has been much delayed and it is very much anticipated.”

One reason for including a national strategy in the Bill is the need for that strategy to be introduced as quickly as possible.

Mike Haley also said that he would like that strategy to be

“more ambitious, and to cover the public and private sectors, as well as law enforcement.”

He made the very good point that

“fraudsters do not decide one day, ‘We only go after bounce back loans because that is a public sector fraud.’ They will go after a loan from the NatWest bank, or a mortgage.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 68, Q130.]

He highlighted the inability to share information and said that some people might say that GDPR was preventing them from sharing information. He went on to say:

“It is a crime that is at scale and at speed in the online environment. To be able to share the mobile numbers that are being used, the devices and the IP addresses at speed across the whole of the environment—payment providers, fintechs and telecos—would be enormously powerful. This is a volume crime, and we need to have prevention at the core of any national strategy. That would have a massive positive impact. ”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 38, Q129.]

Our witnesses called for a national strategy that looks at crime seriously and that is more ambitious than that suggested by the Home Office and broader in scope. Although many of the frauds relate to small amounts, they are numerous and they cause people significant harm. When the Minister responds, I would like him to recall that oral evidence and the reason why our new clause calls for a national strategy.

Financial Services and Markets Bill (Seventh sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Andrew Griffith]

In substance, the Payment Systems Regulator, in the same way as the FCA, the Bank and the PRA, will have the target as one of its principles. It will be for the PSR to decide how it reports against that. These are ultimately decisions for the regulators themselves to put into practice. To the extent that I have more information at this stage, I will write to the hon. Lady with any clarity I can provide.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 47

Cash access services

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I beg to move amendment 40, in clause 47, page 68, line 9, after “of” insert “free of charge”.

This amendment makes reference to the provision of free of charge cash access services in Schedule 8.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Amendment 41, in schedule 8, page 150, line 27, after “service”)” insert

“free of charge or on the payment of a fee”.

This amendment changes the definition of cash deposit services to include both those which are free of charge and which require the payment of a fee.

Amendment 42, in schedule 8, page 150, line 29, after “service”)” insert

“free of charge or on the payment of a fee”.

This amendment changes the definition of cash withdrawal services to include both those which are free of charge and which require the payment of a fee.

Amendment 16, in schedule 8, page 151, line 36, after “concerning” insert

“both free of charge and paid access”.

Amendment 17, in schedule 8, page 154, line 12, after “appropriate” insert

“and must include the provision of free of charge cash access services”.

Amendment 18, in schedule 8, page 154, line 18, leave out from “is” to the end of line 22 and insert “—

(a) an absence of free of charge cash access services in a locality in a part of the United Kingdom, or

(b) a circumstance which limits the ability of persons in any locality in a part of the United Kingdom to—

(i) withdraw cash from a relevant current account, or

(ii) place cash on a relevant current account.”

New clause 10—Access to cash: Guaranteed minimum provision—

“(1) The Treasury must, by regulations, make provision to guarantee a minimum level of access to free of charge cash access services for consumers across the United Kingdom.

(2) The minimum level of access referred to in subsection (1) must be included in the regulations.

(3) Regulations under this section shall be made by statutory instrument, and may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”

New clause 11—Duty to collect data on cash acceptance—

“(1) The FCA must monitor, collect and publish data in relation to levels of cash acceptance amongst retailers and service providers within the United Kingdom.

(2) The FCA must publish a report, as soon as practicable after the end of—

(a) the period of 12 months beginning with the day on which this Act is passed, and

(b) every subsequent 12-month period,

on levels of cash acceptance amongst retailers and service providers within the United Kingdom.

(3) The FCA can, by written notice, require a retailer or service provider to provide to the FCA information that it may reasonably require for the purposes of exercising its duties under subsections (1) and (2).”

New clause 12—Access to cash: Guaranteed minimum provision for small businesses—

“(1) The Treasury must, by regulations, make provision to guarantee a minimum level of access to free of charge cash access services for small businesses across the United Kingdom.

(2) The minimum level of access referred to in subsection (1) must be included in the regulations.

(3) Regulations under this section shall be made by statutory instrument, and may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”

[Martin Docherty-Hughes]

It is good to see you in the Chair, Mr Sharma, and other hon. Members here today. It is a pity that my hon. Friend the Member for Glenrothes cannot be with us, as he has played a large part in constructing these amendments. I know that other hon. Members will want to participate in a debate on free-of-charge access to cash. I look forward to hearing what they have to say. At the moment, depending on what the Minister has to say, it is my intention to press the amendment to a vote, but I will listen to the Minister’s comments.

It is important to give some examples about the reduction in free access to cash. People sometimes wonder where the constituency of West Dunbartonshire is. We are bound by Glasgow to our east, where we become an urban element of the west of Scotland. We move further west through Clydebank, into Dumbarton and through the Vale of Leven, becoming suburban and then semi-rural, to the base of Loch Lomond itself. The community has a diverse demographic, with a range of deprivation that also impacts on people’s need to access physical cash.

In the last four years in West Dunbartonshire—I am sure this experience is mirrored not only in Scotland but the rest of these islands—we have seen a drop of 27% in access to ATMs, or automated teller machines. That is three ATMs, coupled with closures of local bank branches. We are a population of more than 90,000, but we seem to have only three or four bank branches left, which is extraordinary. My constituents face being forced to travel across a range of areas, including sometimes into the city of Glasgow, to access cash. My hon. Friend the Member for Glenrothes and I think it is vital to protect our constituents and the constituents of all other Members, too, in making sure that they have access to free-of-charge cash, notably for the most disadvantaged groups and the elderly.

Let me declare a non-pecuniary interest as the chair of the all-party parliamentary group on Estonia. Estonia is usually used as an example of what a digital state should be. After the fall of the Soviet Union it picked itself up and ran with a full digital agenda. One of its biggest learnings was that no one should be left behind in the race to digitalisation, critically in relation to access to cash. For the Estonian Government, and the Estonian Parliament, making sure that any financial system is not only fit for purpose in the digital age but that it takes everyone with it, including access to services and free access to cash, was their big learning curve. They believed that they failed in that process to begin with.

I hope that, when reflecting on the amendment, the Government realise that there is a huge opportunity to maintain access to cash for a range of reasons. We can talk about our constituents, and predominantly those who are elderly or from disadvantaged groups who use cash on a more regular basis. We can also talk about small and medium-sized businesses, a lot of which have moved to digital transactions. When Members go to a small shop in their own constituencies, they will notice that a lot of transactions have moved to digital due to the pandemic, but shops still have a substantial amount of cash that comes through their doors. One of the big problems that shops also have—not just free access to cash for those consuming their products—is depositing their takings at the end of the day. They are finding that very difficult as well. Businesses rely on consumers who use cash, especially in disadvantaged communities.

I am mindful of what the NM Group said in its submission:

“Cash remains an important form of payment for millions across the UK, particularly during times of economic hardship.”

The narrative of the cost of living crisis is used across the House, so there is clearly an agreement that people are facing economic hardship and that access to cash during that time is critical. That is why we think amendment 40 is important, as are the other amendments in this group.

We should also note that the payment method with the lowest economic friction, providing businesses and members of the public with a crucially important alternative, is cash. It is an important way for people to manage their finances, especially those in a disadvantaged group or those who are elderly who do not use digital money. I also note that the figures published by LINK, UK Finance and the Post Office show that around £10 billion in cash is withdrawn each month. That is £120 billion per annum in physical cash from ATMs, or from bank counters and post offices. The volume of withdrawals from the LINK system alone equates to about two withdrawals per month for each adult member of the UK population.

To bring my thoughts to a conclusion, we need to also be mindful of some of the infrastructure. UK consumers can access cash from over 55,000 ATMs, 11,500 post offices and certain bank branches—if they are not closing down in our local communities. The number of post offices is actually shrinking; there are no longer two or three post offices in a community—there is maybe only one. Over 90% of cash withdrawals take place at actual ATMs. The critical issue around free cash deposit and withdrawal services within the amendment is extremely important.

The access to cash review in 2019 noted that we cannot sleepwalk into a cashless society. That reflects back to what I was saying about the Estonian learning about digital infrastructure: it can leave a substantial number of people behind. That was the reality for Estonia. Cash continues to be important. Contactless payments and online banking can make it easy for some people to live entirely cash-free. However, given the volumes of cash in society, its usage remains extremely high. That reminds us that we do not live in a cashless society. The LINK network still handles around 1.6 billion transactions a month—that was the average in 2021. On average, adults still withdrew over £1,500 a year. During a global pandemic, cash was still being physically used. It is important to listen to the Minister and the Government’s view on it, although it is my intention to press the amendment to a vote. I look forward to hearing what others say.

[Shaun Bailey (West Bromwich West) (Con)]

It is a pleasure to see you in the Chair, Mr Sharma—

--- Later in debate ---

[The Chair]

Before I call Martin Docherty-Hughes, I inform the Committee that I will take one vote on amendment 40. There will be no other vote on this group.

[Martin Docherty-Hughes]

Thank you, Mr Sharma.

It was interesting to hear what the Minister and Members on the Government Back Benches had to say—I congratulate the hon. Member for Mitcham and Morden on the litany of exasperation from the Back Benches, which I thought was well played. I was glad to hear the hon. Member for West Bromwich West agree with the vast majority of what I had to say, and I go back to what the Minister said about the statutory protection of cash. If that is the truth, 27% of free ATMs in West Dunbartonshire would not have closed in the past four years.

I am usually minded to push my amendments to a vote. I seek some reassurance from my colleagues on the official Opposition Benches that if I do not push my amendment to a Division, all the amendments in the name of the hon. Member for Mitcham and Morden will be moved. The Clerk may want to give some advice to the Chair on that issue, because I know that if I withdraw my amendment, I can bring it back on Report. I look for some clarification on that issue first.

[The Chair]

The advice is that if you withdraw your amendment, I will take one of the three amendments from the hon. Member for Mitcham and Morden.

[The Chair]

You choose one of those three, and I will take it if the hon. Gentleman decides not to push his amendment to a Division.

[Martin Docherty-Hughes]

I think I am getting my assurance that one of those amendments will be pressed to a vote by the official Opposition, so in order to make sure that we have a coherent and agreed process, I will not push my amendment to a Division. However, I make it clear to the Government that I have not heard anything today that means that free access to cash will be safeguarded for my constituents, and I will probably bring my amendment back on Report. I look forward to voting with my colleagues in the official Opposition. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 47 ordered to stand part of the Bill.

Schedule 8

Cash access services

Amendment proposed: 16, in schedule 8, page 151, line 36, after “concerning” insert

“both free of charge and paid access”.—(Siobhain McDonagh.)

Question put, That the amendment be made.

Financial Services and Markets Bill (Eighth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Andrew Griffith]

I will be brief. We all join hands in taking any action that we can against fraudsters. It is a terrible crime, and one that is on the rise, and the Government will do everything in our power to take action.

I say to the hon. Member for Hampstead and Kilburn that I will take no lessons from the Opposition on fraud. The impediment to cracking down on this issue lies solely within EU law. It is this Government that have withdrawn from the European Union—a policy that her party now belatedly supports, but did not for many years. It is only by bringing forward this legislation and withdrawing from the European Union that we are able to put in place clause 62.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

rose—

[Andrew Griffith]

I will happily give way to my colleague, who I think, unlike the Opposition, still wants to be part of the European Union.

[Martin Docherty-Hughes]

Definitely. Is the Minister therefore saying that the European Union was promoting fraud within the financial framework of the United Kingdom of Great Britain and Northern Ireland? Is that what he just said?

[Andrew Griffith]

I wish the hon. Gentleman was attentive to what I was saying. That was not what I said; I did not use the word “promote” in any way. I said it was an impediment. Clause 62 addresses the fact that under retained EU law, it is not possible to take the action that we wish to take on push payment fraud. That is a fact, and that is why we came forward with the Bill. There are many other things the Government are doing outwith the Bill to tackle fraud, and I will happily sit down and talk with anybody—and meet with any party—who has practical suggestions to tackle fraud.

--- Later in debate ---

[Tulip Siddiq]

Clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wide range of products. However, I do not think the Bill does much to address the outdated regulatory regime facing credit unions as a whole. We will discuss Labour’s proposals to address that, and the barriers facing the wider co-operative and mutual financial services sector, when we debate new clauses 7 and 8.

However, for now, I will push the Minister on some of the areas where the Building Societies Association—and others—has called for bolder action in its written submission to the Committee. First, why do clause 63 and schedule 12 not relax the same-household requirements for family members? Secondly, why does the Bill fail to restrict access to the register of members, in line with best practice for the protection of members’ personal data?

[Martin Docherty-Hughes]

I agree with the official Opposition on clause 63. I must say, we have talked about 1979, but I would mention 1977, when the Dalmuir Credit Union was opened, and I was number 501 with a membership card, around the age of six, on the church hall stage.

I am very aware of the good works that credit unions such as Dalmuir, Dumbarton and Vale of Leven do in my constituency, and, I am sure, across other Members’ constituencies, but I share the concerns expressed by the official Opposition about the existing infrastructure. I hope that the Minister can say something to alleviate concerns about that existing framework—not only for credit unions but for other local banks, which have been diminished over the past couple of years—and about how the legislation helps to grow this sector of mutual financial support in local communities. We know our banks and post offices are closing, but the credit unions, especially, can be a good cause on which we can all agree.

[Andrew Griffith]

I thank the hon. Members for West Dunbartonshire and for Hampstead and Kilburn for raising those points. I look forward to hearing the debates about the new clauses that have been tabled.

The Government are on the side of credit unions. We would like to see the mutual and co-operative movement flourish. We need more diversity, affordable options and access to credit. The Government introduced this clause with the absolute intention of helping to expand the range and create more economic opportunities for those bodies. If we have, in some way, fallen short of what could be achieved, I look forward to hearing more about that. I cannot comment on the specific point made by the hon. Member for Hampstead and Kilburn about sharing households and data, so perhaps she would allow me the courtesy of writing to her afterwards if I can find out anything about those points.

This Bill is part of a wider set of measures. On Friday, we discussed on the Floor of the House a Bill to help to prevent the demutualisation that has reduced the number of mutuals in recent years. I was pleased to give Government support to that Bill. There is an ongoing conversation with the Law Commission on the options to review the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992. There is a very good case for looking at modernising the legislation in this sector.

Question put and agreed to.

Clause 63 accordingly ordered to stand part of the Bill.

Schedule 14 agreed to.

Clause 64

Reinsurance for acts of terrorism

Financial Services and Markets Bill (Fourth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

What do the Government mean by “innovation” in a piece of legislation? I wonder why such a term is used, because it is so broad. What does the Minister actually mean?

[Andrew Griffith]

If the hon. Gentleman will let me continue, I can offer some clarification. It is vital that the Government have the flexibility to develop a world-leading regime for cryptoassets in an agile way. The innovation itself comes from emerging new technologies or new uses for those technologies. The role of the Government and the Treasury in this respect will be to create regulatory frameworks that enable their safe deployment, which I hope all Members of the House agree with. Together, amendment 22 and new clause 14 will ensure that that happens.

[Andrew Griffith]

I am cautious of time; this issue would be apt for a debate in itself rather than being discussed as part of the Bill’s technical clauses. Aspects of Bitcoin are already within the perimeter of the regulatory regime. As I said at the beginning of my remarks, that is an emerging area. The hon. Member for Wallasey is quite right that there are trade-offs, and we want to protect consumers while not shutting the regulatory regime off from an emerging set of technologies.

[Martin Docherty-Hughes]

rose—

[Andrew Griffith]

I give way again, but I do not want to turn this into a debate about the underlying societal challenges of an emerging technology; I want us to confine ourselves as much as possible to the Bill.

[Martin Docherty-Hughes]

I am grateful to the Minister. I disagree that crypto is emerging; it has been around for quite a long time. In terms of parity of regulation and consumers, there are also the producers. It seems that there would be a halo effect: for example, larger companies would control stablecoin, but small or medium-sized companies that could produce stablecoin might be excluded. Will the Minister assure us of the Government’s intention to create equity in the stablecoin market?

[Andrew Griffith]

It is certainly not the Government’s intention to create anything other than opportunities for different participants to emerge and bring forward products in the sector. Those could include stablecoins, which are asset-backed cryptoassets. Over time, they could include central bank-issued currencies. The Government have indicated a desire to explore that, but have not yet confirmed that the Bank of England or the Treasury intend to issue.

Of course, we must ensure that products already out there being advertised to our consumers are appropriately regulated within the regulatory perimeter. We are not preferring or advantaging one or other part of that, but without the amendment and new clause we would not be able to bring forward the appropriate regulations, which the regulators will consult on with industry in due course. I hope that clarifies the Government’s thinking. Outwith the Committee, it will be appropriate in due course for the Government to update their set of policy objectives for this space. The subject that we are discussing today is somewhat narrower; it is just the remit of the Bill.

Amendment 22 clarifies that cryptoassets are within scope of the designated activities regime introduced by clause 8. We talked earlier about the designated activities regime—the DAR. By bringing cryptoassets within its perimeter for the first time, some of the societal outcomes and concerns that hon. Members have raised can be addressed. If we do not bring them within the perimeter, those concerns cannot be addressed.

New clause 14 clarifies that cryptoassets could be brought within the scope of the existing provisions of the Financial Services and Markets Act 2000 relating to the regulated activities order. The substance is that cryptoassets will be treated like other forms of financial asset: not preferred, but brought within the scope of regulation for the first time. That is the aim of the new clause. It will ensure that the Treasury is equipped to respond to developments in the crypto sector more quickly and deliver regulation in an agile, risk-based way that is consistent with our approach to the broader financial services sector.

The Treasury will consult on its approach with industry and stakeholders ahead of using the powers, to ensure that the framework reflects the unique features, benefits and risks posed by crypto activities. I think that is the assurance that hon. Members seek: that the Government will consult before seeking to use the powers. Any secondary legislation made to bring new cryptoasset activities into the regulatory perimeter would be subject to the affirmative procedure, so each House will have an opportunity to debate the legislation. That gives Parliament the appropriate oversight.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

We welcome Government amendment 22 and Government new clause 14, which we recognise would extend financial protection to cryptoassets. It is a welcome and important move that will help to prevent high-risk cryptoassets from being falsely advertised to the public.

Does the Minister believe that the definition of cryptoassets is broad enough to capture financial promotions of as yet non-existent cryptoassets? I also wanted to ask him how the broad-ranging definition of “crypto” used in clause 8 takes account of the fact that the Bill only brings stablecoins into payment regulation.

[Martin Docherty-Hughes]

I draw the Minister and his Department’s attention to the work of Dr Robert Herian, who is one of the primary academics on regulation. I am mindful that he says it is the technology that underpins stablecoin and other related cryptoassets that we seek to regulate through the legislation. I welcome that—it is a step forward—but he has also said that the technology

“may offer an opportunity to recalibrate the powerplay between those who would engage in aggressive tax strategies and planning, and those charged with regulating them”.

Can the Minister advise Members whether he believes that this approach to stablecoin and future innovative technologies, which are already there, will enable a recalibration, so that finance is not utilised in some type of tax dodge? Could he reinforce that point? Every time we hear a discussion about stablecoin and cryptoassets, there is a certain element of finance that I do not think anyone here would really support.

[Andrew Griffith]

On the question posed by the hon. Member for Hampstead and Kilburn, I do believe that the definition is broad enough. If there are specific concerns or use cases that the hon. Member feels are not encompassed, I am happy to take that back offline or to write to her with advice. The intention is clearly to allow sufficient flexibility to broaden the perimeter.

I am not fully familiar with the works that the hon. Member for West Dunbartonshire talks about, but I am happy to become more familiar with them over time. It is clearly not part of the Government’s intention to legitimise what would not otherwise be legitimate or to create the opportunity for issuers to evade responsibility to society. That is not the Government’s aim and objective.

Amendment 22 agreed to.

--- Later in debate ---

[Peter Grant]

I hope that the record of the sitting will clearly indicate that the Minister was given the chance to reply to the hon. Lady’s question—twice, in fact—but chose not to.

It is a fundamental principle of the devolved settlement that the Conservative party insists that it wants to protect that if a decision is made by a devolved Parliament under its devolved powers, nobody should have the right to overturn or amend that decision other than that Parliament. The Minister has said that he is not aware of any circumstances when he would want to use the power, so why not wait until the circumstance arises? Why not speak to the devolved Parliaments then—or, indeed, why have the Government not spoken to them already—to say that devolved legislation is causing problems, and to ask whether they can agree, cross-party and cross-nation, to change it, rather than pushing aside the devolved nations and the devolution settlement, and imposing rules on our people against the devolution settlement? Let us not forget that 75% of our people voted for the establishment of the Scottish Parliament.

I do not agree with everything Senedd Cymru does. It is not my party that is in government in Wales; it will never be my party that is in government in Northern Ireland. I will not agree with everything they do, but I utterly respect the rights of those Parliaments to legislate in the best interests of their people. If the Minister is saying that he does not think that he will be able to trust the devolved Parliaments to make a sensible decision if and when that becomes necessary, we have a big problem.

[Martin Docherty-Hughes]

My hon. Friend talks about not trusting the Scottish, Welsh or Northern Ireland Government. Any legislation brought forward in those places receives the attention of senior legal advice, whether that be from the Lord Advocate or from others in the devolved Administrations. The amendment defends the legitimacy and independence of the legal advice given by senior legal officers to devolved Administrations.

[Peter Grant]

My hon. Friend makes a valid point. It is sometimes forgotten that the devolved Parliaments have a number of checks in place to prevent them from attempting to legislate on things that are clearly beyond their powers, and there is a clear example of that happening at the moment, but there is no statutory or constitutional check on this place’s ability to push aside the devolution settlement to legislate on matters that are clearly devolved. That is simply not acceptable. Remember, we were talking about what the Government still call the most powerful devolved Parliament in the world. How can it be anywhere near being that if the Parliament that devolved powers to it can grab those powers back at the drop of a hat or the stroke of a pen? I will not withdraw the amendment. Every time I see such a power grab in legislation, I will speak against it, stand against it, and vote against it.

Question put, That the amendment be made.

--- Later in debate ---

[Andrew Griffith]

I will do my very best to respond to that question. It is a point of detail. Today we are putting frameworks in place to try to legislate for as many outcomes as possible. By definition, that means that there is not a definitive list, but I will write to the hon. Lady and share the letter with the Committee.

To that point, given the breadth and variety of activities that may be designated under the DAR, a tailored supervision and enforcement framework will be needed for each one. We all recognise that we might want to regulate insurance in a different way from investment banking.

Proposed new section 71Q of FSMA therefore gives the Treasury the power to confer appropriate powers on the FCA for the purpose of supervising and enforcing regulations and rules relating to designated activities. Some activities that the Treasury may designate already have criminal offences attached to them under FSMA—for example, part 6 of FSMA contains two offences related to the offering of securities. Proposed new section 71Q will allow HM Treasury to maintain an existing criminal offence of offering securities and to modify it, including by adjusting the scope of the offence to reflect the scope of the new designated activity. I imagine from comments made that that would get broad support.

The Government will be able to apply and modify only criminal offences that already exist in FSMA. The provisions will not enable the Treasury to create a wholly new criminal offence relating to this activity. Schedule 3 sets out proposed new schedule 6B to FSMA. The schedule is inserted by clause 8 and lists examples of the types of activity that the Treasury may designate using the power introduced by clause 8. That may be the source of my response to the hon. Member for Kingston upon Hull West and Hessle. At this stage, schedule 3 is indicative only. The Government intend that a number of market activities currently regulated under retained EU law will be designated for inclusion in DAR. It is anticipated that a wider range of activities will be designated in future to ensure that the regime supports an agile and proportionate approach in the UK.

[Martin Docherty-Hughes]

Will the Minister help with a quick clarification on proposed new section 71Q? It refers to “conferring powers of entry”. Would that be on His Majesty’s Revenue and Customs? It has UK-wide powers of entry. Does that refer solely and wholly to HMRC, or does it refer to others who might require entry under the legislation?

[Andrew Griffith]

I will write to the hon. Gentleman to confirm that. It is important that our model of financial services regulation be responsive to emerging opportunities and challenges, and that includes those that can be regulated in future but are as yet unknown. Hon. Members can understand the thrust of what we are trying to do through clause 8 and schedule 3.

--- Later in debate ---

[Shaun Bailey]

The provisions in clauses 13 to 17 are incredibly welcome, because we are dealing with a financial services landscape that is constantly innovating and changing. I should declare that prior to becoming a Member of Parliament, I worked for the legal team at a major big seven bank and saw these developments as part of my role there. The provisions are very important because they will ensure that, as the fintech sector continues to develop and the regulatory framework continues to advance and change, they can do so within the perimeters of the sandbox arrangement introduced by the Government.

I particularly welcome the clause 16 provisions on consulting regulators, and the fact that there is going to be a discourse with them. We cannot cut regulators out of the conversation. The clauses do not seek to do that, but the hon. Member for Hampstead and Kilburn was right to raise queries. We need a bit more clarity on what the consultation will look like. I fully appreciate that it is not always possible to give instant clarity when introducing primary legislation, but it will clearly be incumbent on the Treasury to ensure that, as the process progresses, His Majesty’s Government are as transparent as possible about what the consultation will look like.

We should remind ourselves that the practical application of the clauses will change and develop as the landscape itself develops, because that is the subject matter that we are dealing with. On clause 16, with respect to the development and work with regulators, I urge my hon. Friend the Minister not to forget the important role that lawtech plays in the regulation and monitoring of a lot of the instruments that will be part of the sandbox regime. It is often not talked about, but fintech and lawtech work hand in hand, side by side, particularly in this financial services sector.

I support the clauses; they are the right thing to do. As hon. Members on both sides of the Committee have articulated, they allow not only the financial services sector to innovate and develop, but the regulation to be developed in tandem with them. I would, however, welcome clarity from my hon. Friend the Minister on the what the practical applications will look like, particularly as we build that framework.

[Martin Docherty-Hughes]

I do not want to be the fly in the ointment, but I would like some assurances from the Minister about the FMI sandboxes. The Clifford Chance briefing notes that

“the FSMA Bill permits HM Treasury to allow broad participation in FMI sandboxes which in practice could include FMI providers, and participants in these systems as well as, conceivably, unregulated service providers such as technology companies and any other person that HM Treasury specifies.”

I am looking for an assurance from the Minister and his civil service team on the notion of unregulated service providers having access to the FMI sandbox. It seems that the EU pilot regime is far more limited in its multilateral trading facilities and securities settlement systems, and that it makes no mention of recognised investment exchanges or any other persons. It is not, therefore, making itself a hostage to fortune with its pilot system. Could the Minister and his team provide reassurance on the broad scope of innovation that they seem to be going for?

[Dame Angela Eagle]

I find myself rising to try to elaborate on the important points that have been made. I do not think that anyone would argue against the need to think very carefully about how to pilot—or sandbox, to use the jargon—the very rapid development and potential of what is happening. It is also important in the context of financial market infrastructure.

Certain infrastructures in our financial system are really old. One need only consider how long it took to get the bank clearing process vaguely up to date to understand the importance of modernising infrastructures. I do not think that anyone would object to an attempt to come up with a structure that tests activities, which is what these clauses do.

The Minister, however, has not provided any detail on issues such as risk mitigation; whether parallel sandboxes involving similar infrastructures will be developed, almost in competition with each other; whether this will happen in just one area; or how the powers will be used to test whether potential infrastructures might be worth using. Could he add a little more colour to how he sees those things happening? How big will the sandboxes be? How long will they be allowed to continue? The Minister is grinning because this is the kind of detail that an enabling Bill does not contain, but it might be quite important.

Testing regimes in other areas are sometimes very limited. I would be worried if we had an unlimited testing system running for a long period, allowing unregulated organisations in, perhaps running in parallel with each other. If that is what the Minister is suggesting, I would be worried. If he is suggesting something much more minor and limited, to see whether the technology works and whether people can interact with it to redesign the way in which websites work, I would be less worried.

[Martin Docherty-Hughes]

I am delighted that the hon. Lady has allowed me to intervene. The technology is not new, and that is what concerns me in relation to a lot of the debate on the Bill. There is nothing new under the sun about a lot of the technology, which underpins sandboxes, cryptocurrency and so on, that we are talking about. It just seems that a lot of the terminology takes over the substance of the issue that we are discussing.

[Dame Angela Eagle]

That is true. Blockchain has certainly been around for quite a while. Its use has implications for transparency and for the levels of employment that there might be in the old, more bureaucratic banks.

What would be the use of artificial intelligence in trying to decide how automated these things could become? Would there be worries about over-automation? How would that be looked at in terms of regulation? How open are we going to be about the way in which AI is applied and how it might evolve in ways that might embed discrimination such that we get a system where certain people may be discriminated against and excluded? There are a range of issues that need to be tested in these kinds of environments. It is hard to do that under a negative resolution procedure. I take the Minister’s point, however, about affirmative resolutions. If one of these things worked during the trial period, was issued and became permanent, it is important, as the Minister has said, that any changes are subject to affirmative regulation.

There are a whole load of black boxes in the Bill that we might need to debate further. Could the Minister give us more colour on whether there will be parallel sandboxes, on transparency on what will be used and how it will be compiled, and on how large the sandboxes will be in terms of money on the exchanges or turnover, or however he wants to put it. Then we could consider whether risk is being mitigated and how we can develop a system using trundling and analogue legislation, if I may put it that way, in an environment where innovation is digital and rapid.

I understand what the Minister is trying to do, but this Parliament must still be aware that we need to be on top of the detail of this Bill, rather than just passing shells of enabling legislation that do not give us enough of a handle on what is intended.