Financial Services and Markets Bill

Viscount Trenchard Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, I declare an interest as co-chair of the APPG on Mortgage Prisoners. I thank the noble Viscount, Lord Trenchard, for adding his name to my Amendment 197, which is a probing amendment to allow debate on the issue of mortgage prisoners. There are getting on for 200,000 mortgage prisoners in the UK, who are trapped with their current lenders. For eight years or so they have paid very high standard variable rates, now of around 7%, 8% or even more.

Mortgage prisoners exist because the Government sold their mortgages to vulture funds, which have been increasing their standard variable interest rates and refusing to offer mortgage prisoners new deals or access to fixed rates. The harm being caused to these mortgage prisoners is the direct responsibility of the Government; when the time came for the mortgages of Northern Rock and Bradford & Bingley customers to be sold back to the private sector, the Government could have pursued an approach that ensured that these customers were protected. They could have sold them to active lenders or secured a cast-iron commitment from purchasers to offer these customers new deals.

The risk to these customers was clearly identified. In January 2016, the noble Lord, Lord McFall, wrote to the Treasury, UK Asset Resolution and the FCA to highlight that many of those affected by the sales were mortgage prisoners who would be unable to switch lender. He warned:

“Given the prospect of rising interest rates it is important that all mortgage customers are given the opportunity to achieve certainty over their payments by accessing a fixed rate. I am concerned that some customers affected by these mortgage sales … will not be offered reasonable fixed mortgage rates.”


UKAR responded that, in returning these mortgages to the private sector,

“the option to be offered new deals, extra lending and fixed rates should become available”.

However, this requirement was not written into the contract when mortgages were sold to the vulture fund Cerberus, with the BBC reporting that UKAR is now claiming to have been misled by it.

Consumer champion Martin Lewis, about whose work I will have more to say in a moment, lays the responsibility for the treatment of mortgage prisoners with the Government. He said that they have

“sold these loans to professional debt buyers that don’t offer mortgages, and left these people with these types of mortgages that have been too expensive and crippled their finances and destroyed their wellbeing.”

The Government are directly responsible; they chose to sell the mortgages to vulture funds.

In 2021, the House of Lords passed an amendment that would have capped standard variable rates for mortgage prisoners. This would have provided immediate, practical help for the 200,000 mortgage prisoners and their families. When the Government rejected this amendment in the Commons in April 2021, the Minister claimed that

“the Government and FCA have undertaken significant work in this area to create additional options that make switching into the active market easier for some borrowers.”—[Official Report, Commons, 26/4/21; col. 85.]

The FCA published an update in November 2021; this review confirmed that its interventions have, so far, had only a tiny impact. Only 2,200 of the almost 200,000 mortgage prisoners have been able to switch, just over 1% of the total. It turned out that lenders had only a limited appetite to offer options to switch using the modified affordability test devised by the FCA.

The FCA and the Government show little understanding of how vulnerable many mortgage prisoners really are or what stress and financial hardship they have endured and continue to endure. They certainly have not done anything practical to help. All this misery and harm could have been prevented, but even now the Government still refuse to acknowledge their responsibility or provide any help. At the moment, they and the FCA propose no further action.

This is deeply unfair and more than slightly ironic. A recent LSE report found evidence that the Treasury has not only made back the cost of managing the sales of these mortgages but has made a £2.4 billion surplus. However, there has been one significant development. Last Wednesday, my co-chair of the APPG on Mortgage Prisoners, Seema Malhotra MP, and Martin Lewis, chaired a meeting in Parliament to examine and explain new research conducted by the LSE, generously funded by Martin Lewis. The Treasury and the FCA were in attendance. This research contains concrete and costed proposals for a solution to this long-standing and continuing injustice.

Martin Lewis told the meeting:

“This report lays out starkly that the state sold these borrowers into poverty, knowing it could cause them harm, and made billions doing it. The result has destroyed lives. People have been left in financial, physical and mental misery, exacerbated by the pandemic and cost of living crisis ripping through their already dire situations. When we put solutions to the Treasury in the past, it said it wanted to look at them, but couldn’t as they weren’t costed. Now, having fought tooth and nail to get some of the data needed from official institutions, it is costed.”


Therefore, there should be no more excuses. He went on:

“The Government has a moral and financial responsibility to mitigate some of the damage done. Mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers. I hope the Treasury lives up to its past promise to investigate at speed and uses this report as a springboard to find any and all solutions to free mortgage prisoners.”


The APPG has sent copies of the LSE report to the Treasury, the FCA and other interested parties.

Will the Minister and her Treasury colleagues meet the APPG and its supporters to discuss the solutions proposed in the LSE report? Can she arrange this meeting urgently—certainly well before Report? Thanks to the support, generosity and persistence of Martin Lewis, and the work of the LSE and the APPG, we now have a clear and costed plan finally to bring relief to the nearly 200,000 mortgage prisoners. There can be no excuse for further delay. If we cannot set a course to free these prisoners, we will want to return to the issue on Report. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I am delighted to support Amendment 197, moved by the noble Lord, Lord Sharkey, and to which I have added my name. I served on the former Services Sub-Committee of the former European Union Committee with the noble Lord and have been impressed by his accurate understanding of, and thoughtful approach to, this and other financial issues.

The noble Lord explained the reasons for his amendment with his customary clear logic. I will not take up the Committee’s time by repeating them. I particularly endorse the introduction of a cap of 2% over the standard variable rate for mortgage prisoners. UK Finance has identified 195,000 borrowers from inactive lenders, of whom 47,000 have been identified as mortgage prisoners.

I welcome the FCA’s recent review of this problem and its review of the effectiveness of its regulatory interventions to remove barriers to switching. Recently, only a small number of borrowers have been able to switch from an inactive lender to a new deal with an active lender. I share the FCA’s hope that more mortgage prisoners will be able to switch their mortgage and I hope that the Minister will support this amendment.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly to offer Green support for this amendment and to agree entirely with everything that has been said thus far. I feel a sense of déjà vu all over again. I was just looking back at the comments I made in 2021, when, it is worth noting for the record, this issue of mortgage prisoners went to ping-pong: the House of Lords passed an amendment, and it went back and forth between the two Houses. Back then, we were talking about people suffering under high rates of 4% or 5%, and some were suffering with the vulture funds of 9%. As we have heard set out clearly, the situation has not improved but has got much worse, and we also have a cost of living crisis.

The noble Lord, Lord Sharkey, noted that Martin Lewis is now involved in this, with his crucial supporting research. What a state our country is in when everyone can feel a great sense of relief and hope because someone who is, after all, only a private individual has stepped in where Parliament has failed. Surely this is the stage where Parliament—or the Government—can step up and rescue people trapped in often terrible situations through no fault of their own.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I was waiting to hear what the noble Baroness, Lady Noakes, said on this amendment. I am afraid I cannot support her this time, although we agree on a lot of things. I accept that this is a hard call. The way I look at it, this goes back to our discussion about whether you follow rigid rules or you want people to think about what they are doing. Ultimately, there has to be a desire for people operating in financial services to think about what they are doing in all circumstances. Therefore, I see that as a proper override.

What has been portrayed as the ultra-right wing libertarian approach of just doing things and then being for the high jump if you get it wrong—that is a caricature, I accept—relies on your having done what is right in principle. Some things will not be fair if you merely follow a rigid set of rules. Therefore, it is right that there is a “fair and reasonable in the circumstances” backstop. It is right that if such things happen, there should be discussions about what it means for the generality.

However, it is not right for the FCA to have an automatic override and say, “We’re right, and our rigid rules derived from principles”—because they abandon principles once we have rules—“can never be wrong”, and that people should not have been thinking actively about these things, particularly while they were dealing with customers and individuals. I understand where the noble Baroness is coming from, but I cannot support this. I plug again that we should expect that extra level of thought. This again goes to the heart of having a duty of care. It is the same argument. A duty of care does not mean, “I just do what I’ve always done and got away with” or “I just do what everybody else appears to have done, turn the handle and don’t think about it.” It is a fundamental principle of caring for the consumer that at least the ombudsman can continue with. I heartily think that we need a dash more of it in the Financial Conduct Authority.

[Viscount Trenchard (Con)]

My Lords, I support my noble friend Lady Noakes in her amendment. As she has explained well, Clause 38 requires the FCA, the FOS and the FSCS to co-operate and to consult with each other in exercising their statutory functions. However, it is important that FOS decisions with wider implications do not diverge from FCA rules, or there may be unintended consequences, and predictability and consistency may be negatively affected.

As my noble friend just said, this does not mean that the FCA or the FOS should act without thinking very carefully about what they are doing. Her amendment takes account of that and would be likely to encourage real thought about the consequences of making a particular decision in any case. Besides, Parliament never intended the FOS to be a quasi-regulator. UK Finance has recommended that the FCA should be given a power to overrule a decision by the FOS where it believes that the decision could have wider and perhaps unforeseen implications. My noble friend’s amendment would deal effectively with this potential problem.

Of course, the granting of additional powers to the FCA strengthens further the case that the FCA must be properly accountable to Parliament, and I regret that I have not yet heard my noble friend the Minister acknowledge that, as drafted, the Bill does not provide adequate arrangements for this. I firmly believe that a properly resourced joint committee is how to achieve that.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the Government agree that, where there are wider implications, it is critical that the bodies within the financial services regulatory framework, including the FCA and the FOS, co-operate effectively.

As my noble friend Lady Noakes noted, that is why Clause 38 of this Bill introduces a statutory duty for the FCA, the FOS and the Financial Services Compensation Scheme to co-operate on issues which have significant implications for each other or for the wider financial services market. Clause 38 also ensures that the FCA, FOS and FSCS put appropriate arrangements in place for stakeholders to provide representations on their compliance with this new duty to co-operate on matters with wider implications.

As my noble friend also noted, these organisations already co-operate on a voluntary basis through the existing wider implications framework. The voluntary framework was launched in January 2022 to promote effective co-operation on wider implication issues. Clause 38 will enhance that co-operation and ensure that these arrangements endure over time while retaining the operational independence of the bodies involved.

--- Later in debate ---

[Lord Kirkhope of Harrogate (Con)]

My Lords, I rise for a moment to support the amendments from my noble friends Lord Moylan and Lady Noakes. I spent much of my political career in Brussels, where I used to complain regularly that various directives and regulations were gold-plated when they came back to this country. We were always very stern in the implementation of just about everything that came from the European Union. I and others in this Room played some part in preparing these things, including the anti-money laundering regulations. In fact, for a long time, when I went places I endured the description, “Here’s the expert on money laundering”. This was not very nice, but it got even worse with the PEP issue.

My noble friend Lady Noakes is right to say that we should not dwell too much on our personal problems with this. I will not, although I have had problems—more particularly, one of my sons, when he tried to open an account with an emerging bank. Everything was going swimmingly until someone contacted him and said, “Are you by any chance related to a Lord Kirkhope?” He said yes, presumably thinking that it would help him get a better deal, “That’s my father—thank you very much”. That was that. He then received a communication some two weeks later telling him that his application for an account had been declined, but they would not give him a reason and apparently could not do so under our regulations in this country. It was obvious why he was declined; that information had been enough to make them use some kind of prescriptive arrangement whereby everybody is looked into not individually but under a general approach, subject to having a PEP in your family.

Again, I will not get into the point from my noble friend Lord Moylan that we can now ignore the anti-money laundering regulations or do something different. That might well be the case but I do not want to revive discussions on Europe in this debate. However, we were very careful when we drew up the regulations. It was very much a British component that insisted on the regulations being employed or deployed proportionately. The word “proportionate”, which has been referred to already, was conveyed with those regulations to us in this country. The problem was that, when we entrusted the implementation of the regulations into the hands of the FCA we failed to oblige it to follow a proportionate approach in the way we should have done, although the word “require” is set out in its instructions. It did not do so, has not done so and appears not to be willing to do so.

I simply want to make it clear that consultations, which I think my noble friend Lady Noakes mentioned a moment ago, seemed to take place, particularly in 2017. It was perfectly clearly stated how these things should be implemented. It was not expected that those holding politically exposed positions in the UK should be regarded as anything other than a low risk, rather than the enhanced risk that we seem to be stuck with. I suggest that it is too late for consultation and that it must be done by way of legislation. Very strict instructions must then follow to the financial institutions, past, present and future, that they must not deploy the draconian measures and inquiries that are totally unnecessary and unjustified.

[Viscount Trenchard (Con)]

My Lords, I apologise that, in the earlier group of amendments, I omitted to declare my interests as a director of two investment companies.

All four amendments in this group seek in different ways to find a solution to the problem that all noble Lords, and members of their families, suffer as a result of being designated as politically exposed persons. Regulation 35 of the 2017 regulations provides that a regulated person must “manage the enhanced risks” arising from having a business relationship or conducting a transaction with a PEP. It assumes that such a business relationship always carries a higher risk than a business relationship with a person who is not a PEP. From my experience, I suggest that the reverse is the case—in other words, entering into a business relationship with a Member of your Lordships’ House carries, in general at least, a lower degree of risk than the average risk posed by a customer of a relevant person.

However, the regulation requires more personal KYC information to be provided in respect of PEPs than for other customers. As noble Lords are well aware, it is currently hard enough for anybody to open a bank account or an account with any financial institution. Long-standing customers with active accounts with banks who fail to answer emailed requests for proof of address or the like find their account summarily closed, without any appeal. It is very difficult and time consuming to speak to anyone with responsibility for such decisions. Quite extraordinarily, when a credit card operator obtains KYC information for a customer with regard to one account, it does not automatically regard that information as being equally relevant to other accounts held with it by the same customer. The situation for PEPs is disproportionately worse.

My son, who was resident in Taiwan, was nominated by his employer as a signatory on his corporate bank accounts but was subjected to entirely disproportionate questioning which caused a considerable degree of irritation. He experienced the same thing when proposed by his employer as a signatory on a Singapore bank account. He has now had to agree with his employer not to be nominated on the corporate bank accounts in Korea, where he now resides, and in several other jurisdictions.

I have put my name to Amendment 227, well introduced by my noble friend Lady Noakes, which sensibly seeks to disapply the application of PEP status for this purpose by the FCA in respect of UK citizens. Amendment 215, in the name of my noble friend Lord Moylan and others, would place an obligation on the Treasury to achieve the same thing. But these amendments do not solve the problem for overseas relevant persons. I hope that the adoption of more proportionate and reasonable guidance, as proposed by my noble friend Lord Kirkhope in his Amendment 234, to which I have also added my name, might eventually be copied by overseas regulators too.

In any event, I ask my noble friend the Minister to respond positively and to commit to take action on these proposals. It really is time that something was done about the expensive waste of time caused by the current regulations.

[Baroness Fox of Buckley (Non-Afl)]

My Lords, I will be brief. The noble Baroness, Lady Noakes, made the point that this should not be just about us and anecdotes about ourselves. That is true, but the fact that family members are caught up in it leads you to think, “Maybe I could cope with it, but why should innocent members of my family be affected in this way?”

However, I am falling into my own trap because I am saying “innocent family members” as though we are not innocent. One of the most disconcerting aspects of this whole discussion is that this is about the law of unintended consequences. We all know who these regulations should be aimed at, and none of us would advocate being soft on money laundering or not having the kind of regulatory framework necessary to deal with money used for terrorism and so on. But can you imagine what it would say to the public were they to find out that the PEPs on that list that the noble Lord, Lord Moylan, read out are considered to be dodgy people who are not to be trusted? We are telling the public that political figures in this country are what some of the more cynical and nihilistic commentariat might have us believe—that everybody is on the brink of money laundering. It sends a terrible message, but I feel as though it is just the law of unintended consequences.

As noble Lords know, if you ask whether this is happening because you are a politically exposed person, the person you are talking to goes through the most extreme example of gaslighting, where they kind of glower at you and, as one noble Lord said, either imply that it is happening to everyone all around the country or that you are making it up. You are made to feel completely paranoid, even though you know that that is probably the cause. Without telling anecdotes, I can say that I am met with a certain amount of aggression.

On lots of aspects of the Bill—certainly the parts that I was involved in the other day—we have talked about the public’s frustration that banks are closing all the time. Barclays has just announced a whole set of closures. We are worried about the consequences of not being able to go into a bank and talk to a manager and about what kind of lives we will have if everything is overly removed from people’s interactions. Here we have the most unnecessary example of risk-averse, bureaucratic time wasting from banks which should be spending their time serving the public and working for society’s financial services as we face an economic crisis. Can you imagine how much time they waste checking on us? I know how much time I have wasted during their completely unnecessarily and spuriously checking on us.

I do not know which of the amendments I prefer but, for once, I just want the law to change. I shall go with whichever is likely to win and pass. We are not doing the public any favours at all by worrying that they might think that we are just talking about ourselves in this instance, because the public are having their financial services wasting time on something that is not due diligence but a complete distraction from attacking the real problem.