Financial Services Bill (First sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[Ms Eagle]

Thank you, Chair.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

Q Thank you for taking the time to speak to us. I know that you are in favour of the Bill, as it will give you greater agility and flexibility to deal with things. Going back to some of the comments you made earlier about the consultation process, in which you were clearly fully engaged, one of the things I want to find out relates to the consultation discussions, and obviously you have more responsibilities. Will you shed some light on what came out of those discussions in terms of making sure that there is effective accountability and oversight in relation to the additional powers that you are likely to be given?

Sheldon Mills: I will go first and then pass over to Vicky. It is useful to start with our current accountability, because the Bill and future regulatory frameworks being consulted on by the Government deal with that issue. We wish to be accountable. As an independent regulator, an important part of our process is for us to have public accountability. We serve the public and ultimately are scrutinised by Parliament. Our main form of scrutiny is that of the Treasury Select Committee, but we attend many other Committees. Explaining our activity to Parliament is an important part of our work. Below that, within the Financial Services and Markets Act for the FCA specifically, are our statutory panels. They are there to scrutinise our work in a much closer engagement with the organisation. Then we have the consumer panel, the practitioner panel and the small business practitioner panel, as well as the advisory panel on markets and listings. They are able to make public their views, and—believe me—they do very often make public their views on our activity. In addition to that, we will consult on our policies when we do policy-making work ourselves, as do other public authorities. We will also provide access to non-confidential information and data so that all interested parties can make their views known to us.

We also evaluate our work to ensure that it meets its intended outcomes. We already have an existing accountability framework that would sit well with the additional rule-making powers we may get through the Bill and as we move forward with the proposed reform to the financial services regulatory regime. The future regulatory framework is out for consultation, so I will not say much in relation to it, but we of course acknowledge that there may need to be adjustments to the accountability framework to accord with the additional powers that we are getting. We look forward to seeing the responses to the Government’s consultation in relation to that.

[Abena Oppong-Asare]

Q Just for clarification, during the consultation period there was no analysis looking, in terms of the additional powers, at how the accountabilities need to be changed. My understanding, from what you have just told me, is that it is very much reliant on the processes you think you have got already, which I have concerns about, if I am honest, because the current processes do not appear to take into consideration the additional powers.

Sheldon Mills: As I said, we acknowledge that we will be getting additional powers and there may need to be changes to that accountability framework. Within the Bill, you see the foundational approaches in terms of how things may change. Within each of the specific policy areas, if we take the investment firms prudential regime review, there are certain “have regards” obligations that we will need to take account of in that regime. I think that is a sensible approach to take as you bring in onshored regulation. There are specific needs that Parliament considers it is appropriate for us to consider for that onshored regulation. Then, that “have regards” mechanism of pointing that out to us and us being accountable for meeting those “have regards” in accordance with our statutory objectives is a sensible approach and adds an additional layer of accountability and scrutiny for us.

There are other mechanisms within the future regulatory framework, which is out for consultation. Again, I do not have a strong view on them. I recognise that we are getting more rule-making powers and we may need to have more strengthening of the accountability framework.

[Abena Oppong-Asare]

Q I put the same question to the other witnesses.

Victoria Saporta: To response to your question directly, yes, from the very beginning we had discussions with Treasury colleagues about how, within the narrow confines of this Financial Services Bill—I can talk about the related but quite distinct issue of the future regulatory framework—we could be more accountable, given that the Bill effectively gives the Government powers to revoke particular narrow areas of what will become, on 1 January, primary legislation, and then asks the regulators to fill in those particular gaps. The Government were keen that the process should be part of an enhanced accountability framework.

As Sheldon has said, within the confines of this Bill, the enhanced accountability framework applies to the updating of the rulebook to take into account the new Basel III provisions and the investment firms regulation, and three new “have regards” regulatory principles, which are set out in the relevant schedule and refer to us having to take regard of relevant standards recommended by the Basel Committee on Banking Supervision. That applies obviously to the PRA. We need to take the likely effect of the rules on the UK’s relative standing as a place for internationally active credit institutions and investment firms to carry on activities. Also, we need to take into account the likely effect of the rules on the ability of firms to continue to provide finance to households and businesses. This is an enhanced accountability framework, and the Bill also obliges us to publish how we have taken into account these “have regards”.

Those measures are within the proposals in the Bill to enhance our accountability publicly. There is the separate issue of the consultation that the Government are currently doing on how the future regulatory framework will look, what the enhanced accountability provisions within that are and how they should apply. I would not want to pre-empt that consultation but, clearly, the Government are interested and are trying to look at ways of keeping our feet to the fire, and that is absolutely appropriate.

[Harriett Baldwin (West Worcestershire) (Con)]

Q My questions are for the FCA. In terms of the impact of the Bill on the end consumer and the end user of financial services, what impact assessment has the FCA done on the potential regulatory cost and how that might affect the consumer? We hear a lot from financial services firms about the cost to them, not only of regulations, but also of the fees that they have to pay to the FCA. What business plan and cost assessment has the FCA done on the impact that the measures and the responsibilities in the Bill will have on the industry, which will then be passed on to the consumer, or will it be a reduction in cost?

Sheldon Mills: We have not undertaken a cost-benefit assessment of the Bill. That would be a matter for the Government. We have considered, as we discussed in response to earlier questions, the impact on resources within the FCA. Our current intention is to keep that within our current financial envelope, so we are not predicting at this stage an increase in fees or levies to take account of the Bill. That is all I can say at this stage.

In terms of the impact of the Bill and the onshored legislation, when we review the regulations on the investment firms prudential regime and so on, we will do a cost-benefit analysis of the rules and regulations that we are proposing at that stage. At this stage, we will not be doing that—that would be a matter for the Government, not for us.

In terms of the impact on consumers more generally, as I said, there are aspects of the Bill that are very consumer enhancing. I do not think they came up very much on Second Reading, but the provisions in relation to breathing space will be very helpful for consumers facing issues around statutory debts, which we are interested in as a financial regulator. The issues in relation to the register will be extremely helpful for us in terms of tackling fraud and scams. There are many elements of the Bill that are helpful. It is complicated, but the investment firms prudential regime is also consumer enhancing; currently, the capital requirements facing investment firms are those for the systemically important banks, and they are not fit for purpose. This regime will help us have a capital and prudential regime that is fit for investment firms. So there are a whole host of aspects of the Bill that are supportive of consumer interests and will not necessarily increase costs in a way that will be inimical to their interests.

Financial Services Bill (Second sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[The Chair]

I have second the shadow Minister, Abena Oppong-Asare.

[Abena Oppong-Asare]

Q Thank you, Chair. Thank you for coming to speak to us. There are four audit firms and one of the allegations is that they are very close to each other and cosy with big companies. What are your thoughts on that? In the Bill, it is not very clear that that has been addressed.

Chris Cummings: I am terribly sorry. I was having an IT glitch and I missed your question. I do apologise. Can I ask you please to repeat the question?

[Abena Oppong-Asare]

Q The four audit firms: there are concerns that they are very cosy with each other and are very close with the big companies. The Bill does not essentially address that kind of issue. It does not seem very clear to me. Do you have any thoughts on how that could be addressed in the Bill to strengthen it so that there is better transparency and the relationship is less cosy?

Chris Cummings: Thank you for the question. We take the very strong view that we, as investors, rely entirely on public information. The quality of information produced by management is pivotal to the investment decisions that we make as investors. That has led to the point now where the investment management industry has a stake in more than a third of the FTSE. We think long and hard about investing in any particular company, listed or unlisted, and that is why we believe that it is the investor who is the client of the audit. A company pays for the audit, but it is the investment community that is the client of the audit. That is why we are so outspoken in pushing for better quality audits, and ensuring that the chairs of the audit committee take their responsibilities towards their investors seriously.

We absolutely worry about too close a relationship between an auditor and the company that they are auditing. That is why we feel that audits should be reviewed and we are constantly striving to have a more competitive ecosystem in the audit world, so you raise a very good point. If I may, I will offer to review that section of the Bill in more detail, and if we see anything that strikes us as being too weak or in need of strengthening, I will write to you with our proposals on that very quickly.

[Abena Oppong-Asare]

Q I want to follow up on that, because I recently read your comments about a new audit regulator in the Financial Times. The proposals gave me the impression that you felt that it would be able to ensure better reporting, and essentially hold the governance authority accountable to Parliament. Are you able to explain further about that?

Chris Cummings: Indeed. The audit profession has been through three major reviews recently. We entirely support the proposals to bring ARGA into existence. The work the FRC has been doing to prepare for the transition to ARGA has been commendable, but we need to go one step further and actually encourage policy makers to ensure that ARGA is brought into being as quickly as possible. Personally, I have been impressed by the new head of the FRC’s ability to convene and cajole the audit companies to exercise some soft power, to encourage them to improve the quality of audit. Still, it is not the same as having that statutorily recognised independent regulator, and we encourage this Committee—and other parliamentarians —to push for the establishment of ARGA as soon as possible.

[Abena Oppong-Asare]

Thank you, Chair.

[The Chair]

I call Gareth Davies. Gareth, I think you will have to move to the microphone over there.

Financial Services Bill (Third sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[The Chair]

It might be helpful for colleagues and our witness to say that we have 18 minutes left and three people who want to ask questions, so people might want to be mindful of that.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

Q I want to go back to what Mr McFadden and Mr Flynn talked about, particularly regarding this Bill, so that I have a better understanding. One of the things I am concerned about is that there seems to be more of an onus on punishing the individuals, in comparison to the companies. Earlier in your comments, when questioned about creating corporate and not individual offence, you mentioned holding a company to account, and that, to an extent, that can be done by holding the individuals to account. However, there have been concerns about holding senior executives to account, particularly with Barclays and Tesco. Do you have any direct recommendations that can strengthen the Bill so that it can hold companies to greater account so that we do not have that loophole where individuals are held responsible for this?

Dr Hawley: We actually have two suggestions. One is to introduce a “failure to prevent” offence for individuals, where, effectively, you are in a senior position and this happens on your watch. That is one way of doing it. The other way is to do what happens with the Competition and Markets Authority, where the court has the power to disqualify a director where there is a corporate offence. That is something that was put down in an amendment to the sanctions and money laundering regulations. Those are two legislative options—one of them a bit more radical than the other. The Competition and Markets Authority one is already there in law; it is just a matter of making it effective for these particular economic crimes.

We also think that there needs to be some more blue-skies thinking about whether, when there is a deferred prosecution agreement, companies should be required to claw back some of the money from the senior executives who were running the company when the wrongdoing occurred, because it is unfair that they get to move on, often with huge financial benefits. We saw that with the recent Airbus case—the director left with a massive golden handshake, and then the company and shareholders were left to pick up the fine. I think there is a way to make how the corporate fine is shared fairer. There are quite a lot of potential ways to do it, and we would be happy to provide a paper on that before 3 December, if it would be useful to the Committee.

[Abena Oppong-Asare]

Q That would be helpful. The Bill also increases the maximum sentence for criminal market abuse from seven to 10 years, in line with comparable economic crimes. Do you think that is a strong enough incentive to prevent offences? Is that something you have come across, with crimes going on for some period of time? Do you feel that the maximum sentence will deter that?

Dr Hawley: It is welcome that it has increased. Higher sentences are important, as we see in the US—there are higher sentences for white-collar crime, and people actually go down. To be honest, it is also about enforcement. Actually, quite a few prosecutions for a certain level are better than very few for a high level. It all comes down to regular enforcement, which is something that we very much hope there will be greater thinking about—enforcement resourcing for any of the laws that will be put in place.

[Abena Oppong-Asare]

Q Thank you. I have a final question, which is about your report. I know that my right hon. Friend the Member for Wolverhampton South East asked you a question about the prospect of smaller companies being at a higher risk of fines, which you said you were concerned about. Is there anything specific that could be put into the Bill to help ensure that does not happen? You mentioned earlier that it is easier for smaller companies to be prosecuted, because it is easier to identify the people involved. That seems like a massive and unfair disadvantage for smaller businesses. I am worried that if we do not address this issue, smaller businesses will be prosecuted whereas, effectively, larger companies will not. Do you have specific recommendations that could be looked into?

Dr Hawley: The basic and essential one is that if you introduce a “failure to prevent” economic crime, it immediately covers that gap; it immediately brings larger companies into the reach of prosecutors for economic crimes. We still think the Law Commission will need to look at how the identification doctrine still applies and carries on creating unfairness, even after you have introduced a “failure to prevent” offence, but it would be an immediate stopgap that would stop that happening. I cannot think of any other way of doing that.

[Abena Oppong-Asare]

Thank you.

[Julie Marson (Hertford and Stortford) (Con)]

Q Thank you for your evidence, Susan. I think we all agree that it is such an important area, and your evidence is really interesting.

I was looking at some of the specialist fraud and financial crime law firms’ response to the Law Commission’s review, particularly how it relates to the “failure to prevent” suggestion. They have called the Government’s desire to look at that in the round a very measured approach, and they have pointed to the fact that there have been lots of developments in regulatory and legal environments since the call for evidence. They have said that, actually, the best approach is probably to wait and see—to review, and to look at the entire issue in the round. Given the complexity and the cost to business, what is your response to that?

Dr Hawley: What has happened since the call for evidence closed is the Barclays judgment. We have also had a judgment in the Serco case, in which Serco was involved in procurement fraud against the MOJ, and it could not be the party to a deferred prosecution agreement—only its subsidiary could—because of these corporate liability rules. How it fits with the regulatory system is a really important question. As you will have seen from our evidence, we think that can be really properly thought through and hammered out at the guidance stage to the “failure to prevent” offence. That is where you would have a really good discussion with the private sector, bringing them in to show how you make those parts fit together.

I would like to add that on the regulatory side, as I mentioned earlier, we are seeing a worrying decline in the number of fines imposed by some of the regulatory bodies, for instance in the money laundering space. Creating a criminal offence—it is important to note that it is not a new criminal offence, but a different way of holding people to account for the same criminal offence—would open up a broader range of people who might bring action against a company. We have seen criticism in the paper, including from some of the law firms, about a lack of action by the Financial Conduct Authority on money laundering regulations, very few investigations and no prosecutions of corporates. If it were a criminal offence, companies might be looking at investigations by the SFO, which would really make them sit up.

I think it is about deterrence and how you ensure that compliance with the regulations is not just a box-ticking exercise, which is the risk if you take only a regulatory approach. What is really interesting about the responses to the Government’s call for evidence is that the vast majority of respondents do not think that where a serious crime occurs, a regulatory approach is appropriate; there need to be criminal approaches. I was really struck by how common that was. I think there is some urgency, if I am honest, particularly in relation to the UK falling behind emerging standards elsewhere, but also with the problem of inequality before the law, which I think could become really heightened when the response to the covid crisis plays out. You might get quite a lot of resentment when large actors are seen as getting away with it.

Financial Services Bill (Fourth sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[The Chair]

I have seen two other Members indicating. First, I will come to Abena Oppong-Asare.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

Q I found your comments really insightful. I have several questions, but first I want to go back to your comment about how the Bill does not mention any environmental priorities. You have come with several recommendations, and you said that you have seen the amendments, particularly amendments 20 and 24, which you support.

I want to clarify something you mentioned, which is that there should be an element of penalising large organisations for not carrying out environmental risk assessments. As we know, there are large organisations and companies such as Barclays that do that. I wanted to hear from you about how those penalties would be carried out. Are they financial ones? The concern that I have is that big companies would be able to afford to pay financial penalties, so is that really a great incentive or way of holding them to account?

Fran Boait: This idea is really in the capital requirements regulation, the idea being that financial institutions and banks lending towards high-carbon sectors would have to hold much more capital against that loan. I agree with the concern that they would maybe go ahead and do it anyway, but I think this is an important mechanism for pricing in climate risk, which has taken off in the past couple of years. There is obviously a recognition from the Financial Policy Committee of the Bank of England that climate risk is a huge risk to financial stability—both transition risk and physical risk—so we need to think about that.

Implementing a penalising factor requiring them to hold higher capital should have an important effect. We have seen a similar thing already done in the housing system, which has not completely solved the problem because it is systemic, but it is an important step forward in regulation and really signals to the market that the regulators do want to keep control of the situation. It is not going to solve everything—it is not going to completely stop lending into the fossil fuel industry—but it is quite an important step forward.

The key here is that there should also be a mechanism for scrutinising the CRR that we are onshoring. At the moment, it seems to say, “We are not going to say what we are going to do. We are going to let the financial regulators decide what it is,” which is very dangerous. As Pat McFadden pointed out, it was capital and the lack of banks needing to hold it that resulted in the crash, and it will be the lack of banks needing to hold capital against fossil fuel lending that will keep that carbon bubble, if you like, being pumped up. I am keen to continue the conversation about wider regulation and other things that need to be done alongside that in order to ensure a transition out of fossil fuels, and towards a green economy.

[Abena Oppong-Asare]

Jesse, do you have any further comments?

Jesse Griffiths: Yes. I think it is another extremely important question, and it is an extremely important way to think about the impact of regulation, as being about what kind of incentives it places on different actors to behave differently.

With regard to climate, there are three key points. One is about disclosure: that is why, for example, we made the recommendation on the PRIIPs point that the key information document should have better disclosure on environmental and social governance issues. That creates an incentive between the sellers of those products and the investors buying them, and we know there is strong demand in the investment industry to know much more about those issues and try to redirect their investment towards greener ends. That is important. Disclosure is obviously also important in terms of civil society and the public understanding what different institutions are doing, and also the Government.

The second point on incentives is the point that Fran has made, which I would fully support. Finding ways to disincentivise or penalise fossil fuel investments in particular is extremely important. The scientific research shows us that if we exploit only those oil and gas reserves that are already being exploited, we will still go above the dangerous 1.5° threshold, without even taking coal into account. There really is not any room for further investment in fossil fuels, so it would be an important signal to think about how we fundamentally disincentivise that by introducing penalties for that within the capital requirements of organisations.



The third point is that this is a newish area for regulators. Although we have been thinking about it for a long time and many regulators have been discussing it, it is not like all the answers are known. We had a report a couple of years ago called “The Regulatory Compass”, which explored what it would look like if regulators put a social and environmental purpose at the heart of what they do. There is a lot to do, and a lot of thinking to do there. The first step is, through Bills such as this, giving regulators the responsibility to think about that. I think that is extremely important.

Those are the three main things. The fourth incentive point is that regulation does not solve everything, as Fran said. It is important not to try to solve all problems through this lens, but to think about all the other things that we should be doing—investing in the green future and so on—if we are to solve the climate crisis.

[Abena Oppong-Asare]

Q The Bill mentions a statutory debt repayment plan; I want to get your thoughts on that. Are there elements that you are concerned about? Do you think it goes far enough, and if not, can you make some recommendations? Can I go with Jesse first?

Jesse Griffiths: You can. I do not have anything in particular to say that goes beyond the evidence from StepChange and others on this point. I fully support what they said.

Fran Boait: Similarly, a point that StepChange brought up that it is critical to keep in mind when looking at this kind of regulation is how we look at debtors and the stress and strain that they are under. We need to ensure that their needs are prioritised above those of creditors.

Earlier I made a macroeconomic point about financial services: unless we get our financial services sector better aligned with the needs of the people, small businesses and different parts of the economy in this country, household debt will keep rising. Obviously, we also need good direction from the Government’s fiscal spending plan. The direction of financial services and the direction of Government spending are critical in tackling household debt. If we do not look at some of those underlying systemic causes, we will keep kicking the can down the road, in terms of household debt being a problem. Although changes such as breathing space are welcome, they do not tackle the underlying causes and the need to get the number of people in problem debt down.

[Stella Creasy]

Q I want to follow up on a couple of things. First and foremost, Jesse, you were talking about the co-operative banking sector, what we could do, and what would be within the scope of the Bill, given that co-operative and mutual banking would be covered by the Prudential Regulation Authority. Obviously, there are a number of requirements on co-operative banking that we could consider superfluous now that we have this legislation. I am thinking in particular about section 67 of the Co-operative and Community Benefit Societies Act 2014, which has some unnecessary constraints, given the capital structure it requires. Do you agree that it would be helpful in creating a level playing field, and ensuring that co-op banks and mutuals could compete, to recognise that as the Bill provides prudential regulation that covers those banks, those earlier provisions are superfluous?

Jesse Griffiths: Yes, I think that is very sensible. The main point I would make is that those institutions are very different from other types of financial institution, and need a proportionate regulatory regime. The point that you raised is important. They frequently raise the idea of establishing a network of 18 regional banks on the model of the German Sparkasse system. For that to work, they would need to centralise IT and other services so they do not have to replicate those across the different institutions. As they have, embedded in the network idea, an agreement that they will not compete with each other, they can fall foul of competition regulations, so those would need to be considered.

Those are some of many examples that show you need a different regime for these types of institutions. On following a model like the Sparkasse system, in Germany those regional institutions are jointly responsible for each other, so that creates a very powerful incentive for them to be prudent and responsible lenders. If that internal incentive is already there, you should consider which other regulations are not so necessary for those institutions because, by their nature, they are highly prudent lenders.

Financial Services Bill (Fifth sitting)

Abena Oppong-Asare Excerpts

Committee stage
Tuesday 24th November 2020 Public Bill Committees

We very much feel that the UK Government have not met the promise in their rhetoric on climate change. We know that there is much more that could be done. Although the purse strings are held and the decisions made in Westminster, we will continue to put pressure on the Government to be more ambitious and to do more. Our amendments would push them and the regulators a wee bit further, to try to move a good deal faster because of the pressure of the climate emergency that we face. We cannot wait until some point down the road to make the changes. We need to start today.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I am delighted to speak in favour of amendment 24. In just 12 months, the UK will host and hold the presidency of the 26th UN climate change conference of the parties in Glasgow, where the world will be watching. The amendment shows that the UK means business on climate change and that the Government are putting in place their promise to join forces with civil society, companies and people on the frontline of climate action ahead of COP26. It has the support of all political parties, so this is in no way party political or controversial.

Last week the Committee heard evidence from the likes of the Finance Innovation Lab and Positive Money, which support the amendment. The witnesses mentioned that it would be helpful if the FCA could refer to the Climate Change Act when preparing secondary legislation. Will the Minister therefore consider putting in capital requirements for investment firms, introducing weighting on environmental, social and governance issues such as penalising assets that have climate risks? As we know, the Bill covers legislation on packaged retail and insurance-based investment products, which will bring the £10 billion market to the EU.

We also heard last week that the Bill could be improved further, with a key information document that investors receive when looking at PRIIPS to include disclosure on environmental and social governance issues, and to ask the FCA to ensure that happens. I am sure the Minister will agree that that would help the Prime Minister achieve his ambitious 10-point plan—it is certainly ambitious—for the green industrial revolution.

It is important to know that there is a drive towards greater ESG integration across the financial sector, which investors are pushing for as well. This is an opportunity for the Bill to be shaped more robustly, and it sends a really strong message that the UK takes climate change seriously.

As we sit here today, hundreds of young people are meeting virtually at the mock COP, ensuring that net zero goals are deliverable. I am therefore surprised that elements of the amendment are not already in the Bill, given the Prime Minister’s ambitious 10-point plan for a green industrial revolution, which will not be deliverable if we do not reinforce our commitment to environmental sustainability in the Bill.

The amendment, which I believe is rather reasonable, would lay the foundations for sustainable environmental infrastructure with substance. As mentioned by a number of colleagues, this is not controversial but something that we really need right now. Particularly as we are dealing with covid, we need to be thinking seriously about the environment. The only way we can ensure that this is delivered is by putting something in the Bill that requires firms and the regulator to step up on this issue.

We do not have time for delay. This is an opportunity for us to put our heart into the Bill and deliver what we have promised, and it falls in line with what all political parties have been asking for.

[Stella Creasy]

The shadow Minister is making a powerful speech. I take the point made by the Government side, but I always wonder: what about the counterfactual? What problem will there be if we do not put these things into legislation? What message would that send about what might be jettisoned if, God forbid, we had another crisis on a similar scale to this year’s? Action on climate change is something that we simply cannot afford to go slow on. The counterfactual on this is an important issue, because it gives us an opportunity to say that if we do not put it into legislation, we are sending a message that this might be an optional extra, rather than an integral part of our future as a country.

[Abena Oppong-Asare]

My hon. Friend makes a good point. The UK Government constantly say on their website that they plan to go further and faster to tackle climate change. As my hon Friend has mentioned, this is a perfect opportunity to ensure that this is implemented in the Bill. I am surprised, frankly, that it is not in there. All that we are asking for is a reasonable amendment that already falls in line with the Government’s objectives. It is not going to create any extra work. We need to think about the future, particularly if we do not take action to address climate change, because we are heading for difficult times and I am really worried about the future for younger generations.

[John Glen]

Let me say at the outset that the Government are fully committed to reaching our climate change aims both domestically and internationally. We have set our commitment to net zero in legislation. When I was listening to the right hon. Member for Wolverhampton South East discuss the range of interventions and announcements that the Government have made in recent weeks and pivot back to the good work done previously, this underscores the fact that looking at this through a bipartisan lens is probably the most effective way. The aims that we share should be supported by sectors across the economy, not least financial services, as the Chancellor set out in his recent statement to the House.

Amendment 20 would insert the net zero target into the FCA’s accountability framework for the implementation of the investment firms prudential regime. Amendment 39 is similar, as it would insert an additional consideration into the FCA’s accountability framework, requiring the FCA to have regard to the likely effect on the UK’s domestic and international commitments on climate change.

I fully support the intention behind these amendments, of course, but the aim of this measure is to enable the implementation of a specific prudential regime to apply to a specific type of firm. The current “have regards to” provisions in the Bill are those that the Treasury found to be immediately and specifically relevant and that reflect issues raised by industry. I think about our relative standing and the importance of considering and aligning with international standards. Those are the ones that also relate to the equivalence decision and are directly tied to the implementation of the IFPR.

As the Chancellor set out in his statement outlining the new chapter for the financial service in the UK, if we are to achieve the net zero target it will mean putting the full weight of private sector innovation, expertise and capital behind the critical global effort to tackle climate change and protect the environment. The Treasury and the regulators are already making ambitious strides to that effect, and Members have referred to the role of the former Governor, Mark Carney. I draw attention to the green finance strategy, which the Government published just 15 months ago, and to the work across a number of activities in the City on which I have been seeking to lead over the past three years. The green finance strategy is something that the regulators have actively supported.

Financial Services Bill (Sixth sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 5th sitting & Committee Debate: 5th sitting: House of Commons & Committee Debate: 6th sitting: House of Commons
Tuesday 24th November 2020 Public Bill Committees

[The Economic Secretary to the Treasury (John Glen)]

It is great to be under your chairmanship again, Dr Huq. I thank the right hon. Member for Wolverhampton South East and the hon. Member for Glasgow Central for their comments.

The right hon. Gentleman opened with a depiction of the appalling situation with Boohoo, the Levitt review and the challenge of securing widespread adherence to higher standards of corporate governance. He mentioned the actions of Sir Douglas Flint from Standard Life Aberdeen, with whom I have worked closely during the last three years.

Many of the particular aspects of that case are beyond the scope of the Bill, but the right hon. Gentleman uses it to illustrate the reasons why he tabled the amendments, which would introduce a new “have regard” in the accountability regime to which the Prudential Regulation Authority and Financial Conduct Authority would be subject when implementing the Basel standards and the investment firms prudential regime respectively. The amendments would require the PRA and FCA to consider higher standards in social practice and corporate governance when making new rules under the Bill.

It is unclear from the wording of the amendments whether regulators would need to look at their own best practices or those of the firms they regulate. Regardless, I fully support the intention behind the amendments. Indeed, I have chaired the asset management taskforce over the past three years: we have had 10 meetings with industry representatives, including Catherine Howarth, whose responsible investment charity ShareAction has done some significant work on stewardship and how we can get better transparency across the whole of the ESG agenda. Indeed, I believe that our report on that will be produced imminently.

There is no doubt that the regulators are committed to the highest levels of equality, transparency and corporate responsibility. For example, the UK has some of the toughest requirements on bonus clawback and deference in the whole world. The Government, working with the regulators, were also world-leading in the design of an accountability regime for senior managers in the industry; sequentially, over the past three years, that has extended to more and more parts of the financial services industry.

FCA solo-regulated firms are expected to have undertaken a first assessment of the fitness and propriety of their certified persons by 31 March 2021. The senior manager and conduct regime, implemented for all banks, building societies, credit unions and Prudential Regulation Authority-designated investment firms in 2016, was extended to cover insurance firms in December 2018 and most other FCA-regulated firms by December last year.

However, the track record of our regulators should not make us shy away from making them legally accountable for upholding the highest standards going forward. The fact is that the regulators, as public authorities, are already subject to the requirements under the Equalities Act 2010, as are businesses across the UK, including firms within the scope of the PRA and FCA remits. They already have existing powers and duties under the Financial Services and Markets Act 2000, which is being amended by this Bill, in respect of pay, transparency and principles of good governance. In fact, they are already responsible for making rules on remuneration under these two prudential regimes.

I recognise that when I think about the City, there are significant elements that need more work. For the past while, I have been responsible for the women in finance charter. I am currently conducting a series of challenges to the CEOs of banks, looking at what they are doing to address, beyond the targets, a pipeline of talent, so that there are better opportunities for more women to reach the executive level. I will speak more about that later this year.

Sound governance is necessary to support the regulator’s primary objectives of safety and soundness, market integrity and prevention of harm; a new legal obligation in this space would only be duplicative and redundant. It would likely conflict with existing obligations on the regulators in exercising their duties to ensure the sound governance of regulated bodies, creating confusion over whether these vaguer concepts conflict with the regulator’s general objectives.

I do not believe that this Bill is the right place for such changes, but there might be other routes to reassert how important we think these matters are. The Government are currently considering the policy framework in which the regulators operate through the future regulatory framework review, which I mentioned this morning and on Second Reading. I would welcome right hon. and hon. Members’ engagement on this important question—I really would. The matters that the regulators need to have regard to as part of this Bill reflect considerations immediately pertinent to these specific prudential regimes and, I believe, provide the right balance.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I am really happy to put forward amendment 25, because it will require that, when making capital requirements regulation rules, the FCA must have a high regard to standards in social practice and corporate governance, including pay, adherence to equalities legislation, transparency and corporate responsibility.

We know that best practice corporate governance results in social and economic gains, and that is something the Government are particularly passionate about. Companies that persist in treating climate change solely as a corporate responsibility issue, rather than a business problem, are running a risky business and stand to lose out.

We have seen businesses turn the need to tackle climate change into successful business opportunities. For example, BrewDog, the world’s largest craft brewer, will remove twice as much carbon from the air as it emits every year, becoming the first carbon-neutral brewery. If companies can already shoulder this social responsibility and incorporate it into a successful business model, there is no reason not to hold all businesses to the high standards our country needs to tackle imminent social and political issues.

Climate change affects every facet of everyone’s lives. The effects of climate on companies’ operations are now so tangible and certain that the issue demands a strategy and leadership from the Government. Government intervention has worked before, and it will work again, particularly through amendment 25. Take the Equal Pay Act 1970, for example, which was mentioned previously. Business and civil society converged, and companies with over 250 employees were made to publish data on pay gender discrepancies, resulting in a win-win scenario. Excellent work is now being done to tackle this further and understand racial, gender and environmental concerns, which are intricately linked. We have to follow civil society’s work on equal pay and extend the reporting to data collections on the grounds of racial equality and environmental equity, because our actions will be futile if our evidence is not fertile.

There is no one-size-fits-all approach to climate change: each company’s approach will depend on the particular business and strategy. What we are calling for in this amendment is for the Government to support and enable employers to publish an action plan to tackle climate change and social inequalities, including initiatives to mitigate climate-related costs and risks in client value chains. Jesse Griffiths, the CEO of the Finance Lab, had some important advice for the Committee last week. He said:

“I think that the absolutely fundamental issue with regards to the Bill is that it is an opportunity to put social and environmental purpose at the heart of both the regulation and the duties of the regulators.”—[Official Report, Financial Services Public Bill Committee, 19 November 2020; c. 113.]

Environmental engagement is economic effectiveness, and this amendment will improve the economic health of our businesses and the environmental health of our country.

The amendment would also ensure that regulators can act in accordance with social needs, and ensure that businesses maintain corporate responsibility while still thriving in a competitive marketplace. When the Government asked Ruby McGregor-Smith to review the diversity pay gap, I welcomed that initiative. Campaigners have moved mountains in terms of identifying the profitability, both social and economic, of deepening our commitment to diversity and opportunity of wealth and health creation for all. In McGregor-Smith’s review, “The Time for Talking is Over, Now is the Time to Act”, she highlights how for decades, successive Governments and employers have professed their commitment to racial equality, yet we see that vast inequalities still exist. We must ensure this does not happen with our commitment to environmental stability, and the amendment will help ensure that.

Racial equality, gender equality and environmental stability can never be achieved unless we understand the ways in which they are intricately linked. As Ruby says, the time for talking is over, and I am sure that all the young people participating in the mock COP as we speak agree. I know that I mentioned this earlier about young people, but they are important: they are our future, and we really need to take them into consideration. With 14% of the working-age population coming from a black or minority ethnic background, we know that employers have to take control and start making the most of our talent, whatever their background.

The point stands out when looking at the pay gap for disabled people in the UK. In 2018, the median pay for non-disabled employees was £12.21 an hour, while for disabled employees, it was £10.63. The Minister mentioned earlier that he sat on the asset management taskforce—

[John Glen]

Chaired.

[Abena Oppong-Asare]

Chaired—apologies; I have bad hearing. He gave examples of shared actions and how to get better transparency, and mentioned that regulators are already committed to higher transparency. I am sure he agrees with me that businesses need to be held to account. The amendment will also help to create an environment that nourishes talent equality and protects our natural habitable environment.

The amendment basically brings huge financial, environmental and social rewards. Companies must realise they cannot ignore those issues anymore. However, we know that most companies will act only when they see a reason to do so. What we need is less talk and more action.

Financial Services Bill (Seventh sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[John Glen]

Clause 8 is the first of 14 clauses that amend the benchmarks regulation in order to provide the FCA with the powers it needs to oversee the orderly wind-down of critical benchmarks such as LIBOR. Critical benchmarks are benchmarks that meet certain criteria—for instance, they are used in a significant volume of transactions, or the benchmark is based on submissions by contributors, the majority of whom are located in the UK. A number of powers in the benchmarks regulation are limited to the oversight supervision of critical benchmarks or the administrators of such benchmarks.

Clause 8 adds new criteria for what may be designated as a critical benchmark. As a result, a benchmark will be considered critical if its cessation would cause significant and adverse impacts on market integrity in the UK, even where the benchmark has market-led substitutes, provided one or more users of the benchmark cannot move on to a substitute. The new test means that, as a critical benchmark winds down, the value of contracts that use the benchmark diminishes. The powers available to the FCA to manage the wind-down of critical benchmarks will remain available, provided that the benchmark meets the relevant tests to remain designated as a critical benchmark.

In addition, one of the existing tests for what may be designated as a critical benchmark has been changed. The test originally stated that a benchmark would be designated as critical where it met either both a qualitative and quantitative threshold of use in more than €400 billion-worth of products, or the qualitative threshold only. The quantitative threshold has now been removed, as it has become redundant. This measure has been welcomed by industry as an important development in managing LIBOR transition, and will ensure that the FCA has the powers it needs to manage the orderly wind-down of this critical benchmark.

I am aware, as a result of my engagement with industry—indeed, the Committee heard evidence of this last week—that there is support among market participants for additional safe harbour provisions to complement the provisions in this Bill. I can assure the Committee that we are committed to looking into that further issue and providing industry with the reassurance it needs. That conversation is ongoing and, I think, is to the satisfaction of the industry; we are working to a conclusion with it. However, given what I think the Committee will concede is the complexity of the matters involved, I cannot commit to an outcome, and I think the industry recognises that.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I want to go back to what happens if moving to another benchmark is “not reasonably practicable”. I note that the Minister is looking into that and seeking reassurance. One thing that we are particularly concerned about in this clause is the question of whether “one or more users”, if it is reasonable and practicable, can switch to a market-led substitute benchmark. How do the Government define what is reasonably practicable in this case? Will he explain that to me, please?

[John Glen]

I am grateful to the hon. Lady for her question. In terms of the benchmark’s being classed as critical and the appropriateness of substitutes, certain contracts face barriers to moving off a benchmark. While some contracts are bilateral and that renegotiation may be possible, many contracts are multilateral and involve the consent of multiple parties before a change can be made. Therefore, in some cases, achieving consensus on the changes is likely to be difficult or impossible, due to the absolute number of parties that will be involved, or due to the threshold at which consent would be achieved. In those situations the existence of an appropriate substitute is not relevant, as users will not be able to move on to it. The complexity of what they are on means that there is not anything substitutable.

--- Later in debate ---

In truth, this is a complex judgment made by the regulators in the context of what is happening in the market, the readiness of the alternatives, and what I have just described. The Government will make a direct evaluation of that, but here we are setting out the context in which that power will be used by the FCA.

[Abena Oppong-Asare]

On the point about the Government making a direct evaluation, if the benchmark user argues that it would not be reasonably practical to move to a market-led substitute, but the Treasury disagrees with that, what recourse does the user have to challenge this decision?

[John Glen]

These matters will be governed by protocols with the industry. The industry would have a dialogue with the FCA, through which these matters would be resolved. There would be a dispute, I would imagine, about the number of contracts, the number of people involved in those contracts, and the readiness of an available alternative. Usually, these matters would be resolved through dialogue and consultation.

[Abena Oppong-Asare]

That is really helpful, in terms of the dialogue with the FCA. Will a process be followed to ensure a fair system is applied with regard to substitutes that disagree with the Treasury process, or will how it is done be judged at that time?

[John Glen]

The complexity of these contracts and their reference to these benchmarks necessitates ongoing dialogue. There is a significant team in the FCA that deals with this work. The industry has been very concerned about this. This is a live, ongoing conversation. Given the context, and the history that the right hon. Member for Wolverhampton South East and I set out, and how appalling this situation was previously, there is wide consensus that this should be done in an open and collaborative way. This regulation will be used in that spirit.

Financial Services Bill (Tenth sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Tuesday 1st December 2020 Public Bill Committees

[John Glen]

The clause will insert new paragraph 13A into schedule 2 of the Savings (Government Contributions) Act 2017. The clause gives the Treasury a power to make regulations that provide for the transfer of funds from a mature Help to Save account to a new or existing savings account with NSNI in the National Savings Bank where the account holder has not provided instructions upon maturity for it to be transferred elsewhere. It will be known as the successor account. The clause also provides that any regulations made under it cannot override the account holder’s instructions for the transfer of the balance to an account of their choosing. Where a transfer is made to a successor account, no charge may be imposed on the account holder for the transfer.

The Help to Save scheme supports individuals on low incomes to build a savings fund over four years, providing a generous 50% bonus. More than 222,000 accounts have been opened as of July 2020, and more than 47,200 savers have benefited from their first bonus. At the end of the four-year term of the Help to Save account, savers will be encouraged to provide instructions on where they want their savings transferred—for example, to a new or an existing savings account. However, some savers might not provide instructions, and the Government are in the process of evaluating the best way to support such customers, who have become disengaged from their accounts, to continue to save. A successor account is one of a number of options that are being considered. I therefore recommend that the clause stand part of the Bill.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

It is a pleasure to be under your chairmanship, Mr Davies. I would like to speak to new clause 3, which calls on the Government to prepare and publish an annual report on the Help to Save scheme for each financial year that it remains open to new accounts.

The Help to Save scheme is a form of savings account that allows eligible people to receive a bonus of 50p for every pound they save over four years. The scheme is particularly good, as it targets people who are entitled to working tax credits or who are in receipt of universal credit. Given the failure to support jobs during covid-19, the number of households currently receiving universal credit has risen from 1.8 million in May 2019 to almost 4.6 million as of October 2020. I am sure everybody on the Committee agrees that that is a very high figure, although I appreciate that we are going through really difficult times because of covid.

One of the things that I am seeing as a local MP in my constituency—I am sure it is the same for everybody on the Committee—is a huge increase in universal credit claimants. We are likely to see an even bigger increase as people are no longer able to rely on their personal savings, so the Help to Save scheme is more important than ever.

After a two-year delay, the Help to Save scheme was launched by the Government in September 2018, to much anticipation. However, the scheme to date cannot be considered a success, and I am eager to find out why. We tabled the new clause because we feel that an annual report would help us in uncovering that. Of the 2.8 million people eligible to take up the scheme, only 132,150 accounts had been opened by July 2019—just 4.6% of those eligible for the scheme. I am still struggling to understand those figures and to believe that the Government are truly committed to a savings scheme and to creating a culture of household saving.

Furthermore, in last year’s spring statement of March 2019, the Government’s Budget watchdog slashed by half its forecast of how much the taxman would have to spend on Help to Save by 2021, citing lower than expected take-up. However, as I mentioned, I am in favour of the scheme and want it to succeed. That is, after all, why the previous Labour Government spent time highlighting the scheme and planning to launch it in 2010 as a savings gateway, only for it to be scrapped in 2010 by the then Chancellor.

Members may agree that the information we have so far does not paint a picture of commitment from the Government to supporting people to save. When the savings gateway was created, Labour worked with banks, building societies and credit unions, which invested in software and promotional literature for the launch. Some potential savers had received letters informing them of their eligibility and telling them about local providers just hours before the scheme was scrapped by the incoming Conservative Government.

I am really interested to hear what measures the Government have implemented to promote take-up of the scheme. I could raise many issues about universal credit and working tax credits, but as you advised, Mr Davies, we need to keep to the new clause, so I will raise them another time. My primary concern is to ensure that those who are eligible can access the scheme, now and in the future.

The Government’s pilot scheme found that 45,000 individuals saved a total of £3 billion during the trial period. We know that the scheme works. Charities and debt support services are hopeful that it can directly tackle asset poverty. The Help to Save scheme is due to come to a close in three years’ time, in September 2023, which means that we still have time to support people to save over £800, if we act now to make the scheme more widely accessible.

Publishing an annual report on the scheme, as provided for by the new clause, would allow us to see in detail where take-up has been successful and what we can do to ensure that people are aware of the scheme and how to engage with it. We feel very strongly that a report would help us to capture what areas we need to improve. The Minister mentioned that the Government are committed to providing support. I hope that they are, but agreeing to have an annual report would show further commitment.

In the meantime, I believe that more can be done, particularly to integrate with credit unions and debt management services so that the scheme functions more effectively in the years it has left to run. I would also be really interested, in lieu of an annual report for 2020, given that at the end of last year it was estimated that only 4% of eligible people have signed up to the Government’s Help to Save scheme, if the Minister could tell the Committee whether he thinks it has been unsuccessful and what the Government are doing to promote take-up.

[Stella Creasy]

I rise to support what my Front-Bench colleague said on new clause 3 and to speak to new clause 14, which seeks to underline the question that she set. Given that this is a good scheme, why has it not been taken up more widely?

The Minister may have thought that I was just a one-trick pony, obsessed with debt. Let me tell him that my difficult second album is very much about savings. I know that he had concerns about the drafting of my previous amendments and I want to put on the record my thanks to the Clerks, who have been incredibly helpful and patient with me in seeking to get the wording right. We all appreciate the hard work that they do behind the scenes to ensure that our drafting is intelligible, even if it is not inevitably accepted by the Minister.

I hope that the Minister will accept this new clause and my difficult second album about savings. This is two sides of the same coin of how people make ends meet. I would wager that that is why he has put them together in this portmanteau or Christmas tree Bill––given that it is 1 December, we may as well call it that. It is about how we make sure that people have the money they need, whatever the weather or time of year and whether things are going well or badly for them. Just as we would want people to get help when they get into debt, we also want them to get help to have rainy day money, as it might quaintly be called now. I said that to a member of my staff who looked blank and probably tried to look it up on Instagram.

Clearly, helping people on low incomes to save is critical. One reason why I support the new clauses is that I do not think we can have a conversation about savings without talking about assets. There are increasing inequalities in our society. Indeed, the new inequality is not so much about income as assets. We are looking at why people do not take up the scheme, what we can do to make it work and whether it serves the purpose that we are trying to get at. While we come from different political traditions, I hope that the Minister would agree that income inequality is of itself a negative draw on our economy and social cohesion. Perhaps that is the best way I can put it to him. One day, I will tempt him towards the more radical socialism of egalitarianism.

When we have people who have plenty and people who have very little, or indeed no access to anything, our society suffers. The Help to Save scheme is about improving that situation. It is increasingly obvious that in constituencies and communities like mine that are riven by gentrification and inequality, it is assets that are the difference between success and failure. That is necessarily different from savings accounts, and it is right that when we are looking at what we are doing to help those on the poorest incomes succeed in life, we are cognisant of that fact and include it in our thinking.

What do I mean in layman’s––or perhaps laywoman’s––terms? One in five mortgages are issued with the help of the bank of mum and dad. People with the bank of mum and dad are always going to be more successful and stable than many of those constituents who do not have access to that. Those are the people at whom the scheme is targeted. The 10 million households that have no savings at all stand in a very different place from the one in 10 children born in the 1980s who will inherit more than half average lifetime earnings. Property is the divider within our society and that trend has got a lot worse over the last 30 years, yet very little Government policy on tax and savings begins to address that and the income inequalities that it creates.

When we are looking at a savings scheme and expecting people to have money to put aside––even what might seem very modest sums––we have to set it in the context of the other assets they have access to if we really want to get to grips with those inequalities in society. In looking at tax and benefit policies, and savings policies, the fact that someone can inherit £1 million in property without paying any tax at all stands against those families with £15,000 of debt who will never be able to put any money aside because they will always owe somebody else. All Governments of all colours have been burned before in trying to address some of these factors, and in taking a narrow view purely of income levels. I am old enough to remember TESSAs—not just the fantastic Dame Tessa Jowell who is sadly no longer with us, but tax-exempt special savings accounts, which drove income inequality in this country in terms of people’s ability to put money aside.



It is right that we ask ourselves whether this measure will get to the root of that problem—to the communities and people we represent who will not be able to save and whose lives will always be askew, because their counterparts have been able to benefit from that growing asset wealth, whether that is people who have inherited property or people who are now in communities such as mine, where housing costs and housing values have risen to such an extent that their children will be able to benefit from them, including from schemes such as remortgaging. In situations such as that with covid, which we know is an income shock, people might be expected to use their savings account, but they cannot because they do not have any money in it, so it is even more apposite to ask whether they have other assets that they might be able to draw on in comparison with their counterparts.

Financial Services Bill (Twelfth sitting)

Abena Oppong-Asare Excerpts

Committee stage & Committee Debate: 12th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[The Chair]

When we reach it on the amendment paper, so not quite yet.

New Clause 8

Money laundering: electronic money institutions

‘(1) The Proceeds of Crime Act 2002 is amended as follows.

(2) In section 303Z1(1) after “bank” insert “, authorised electronic money institution”.

(3) In section 303Z1(6) after “Building Societies Act 1986;” insert—

““authorised electronic money institution” has the same meaning as in the Electronic Money Regulations 2011.”

(4) In section 340(14)(b) after “Bank” insert “, or

(c) a business which engages in the activity of issuing electronic money”.’—(Abena Oppong-Asare.)

This new clause would update definitions in the Proceeds of Crime Act 2002 to reflect the growth of financial technology companies in the UK by equalising the treatment of fin tech companies with banks on money laundering and Account Freezing Orders.

Brought up, and read the First time.

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I beg to move, That the clause be read a Second time.

It is a pleasure to have you chairing this sitting, Dr Huq. I rise to speak in favour of new clause 8, which would be good for consumers. [Interruption.] I see that the Minister is agreeing with me—or, at least, he is smiling with me—so I think we are almost getting there.

This new clause would be good for Britain’s world-leading FinTech sector. At the same time, it will improve the ability of our crime prevention agencies to do the job that we all want them to do—that is, to crack down on criminal activity and, in this case, money laundering. It would achieve those objectives by updating definitions in the Proceeds of Crime Act 2002 to ensure that customers of FinTech are treated in the same way as customers of traditional banks with regard to anti-money laundering provisions and account freezing orders. These outcomes would help. We have tabled this new clause because this is an opportunity in the Bill to address the technical deficiencies in the anti-money laundering regime; it is not political in nature. We hope that the new clause will therefore receive cross-party support, as we believe that we are all united in our desire to clamp down on money laundering.

The need for this new clause has arisen because outdated definitions in the Proceeds of Crime Act 2002 are disadvantaging customers, placing unnecessary pressure on law enforcement, and could allow suspected criminals to avoid complying with law enforcement requirements to forfeit illicit funds. Simply put, this legislation was written before FinTechs existed, and we really need to look at updating the law now because so many people use them. I understand that there is considerable support from the sector and law enforcement for updating the relevant definitions in the Proceeds of Crime Act to reflect the growth of FinTechs, and the passage of the Bill provides the ideal opportunity to do so. We need to act now by amending the Bill, rather than waiting for dedicated legislation, because the problems for consumers, the sector and our crime agencies are getting worse due to the rapid growth of the FinTech sector. I hope that the Minister will therefore accept this simple, highly targeted and rather uncontroversial new clause.

Let me turn to the details. The new clause fixes two specific problems. First, it updates the legislation relating to the defence against money-laundering processes. The second problem relates to account-freezing orders. Under the existing legislation, when financial services firms suspect that someone is engaged in money laundering, it is normal practice for their account to be frozen and for an appropriate decision to be made as to what should be done with the funds, which might include, for example, returning them to source. However, in order legally to be able to return the funds to source, the regulated firm is required to request a legal defence from the National Crime Agency—the so-called defence against money laundering, or DAML—to carry out this activity. DAMLs take two weeks to process. During this period, firms cannot even communicate with customers or allow them to withdraw funds. As we know, the covid pandemic is a particularly difficult period for a lot of consumers.

For reasons of practicality, an exemption was introduced in 2005 such that banks do not request a DAML if the transaction they are to carry out is below £250, but the FinTech sector did not exist at that time so the exemption does not apply to it. Electronic money institutions—that is what most FinTechs are regulated as—are still required to request DAMLs for all transactions, even those of a low value. Low-value DAMLs do not provide useful intelligence to the NCA. I understand that when the UK Financial Intelligence Unit reviewed a sample of 2019-20 DAMLs, it found no refusals for requests under £250.

The rapid growth in the FinTech sector and its inability to use the £250 exemption means that the number of DAMLs has grown from 15,000 in 2015-16 to 34,000 in 2018-19 and 62,000 in 2019-20. According to the NCA’s recently published annual report, the most significant growth was seen from financial technology companies. The report says that such firms submitted 32,454 DAMLs and suspicious activity reports, which is up 247.36% from the previous year, when there were 9,343. The number of DAMLs will continue to grow rapidly until the threshold is extended to EMIs.

That rapid growth is placing significant pressures on FinTechs, customers and law enforcement. For example, a recent article in The Times showed that many customers have their accounts locked out for extended periods. More worryingly, the head of the UK Financial Intelligence Unit, Ian Mynot, told the Financial Times last week that unnecessary DAML reports are affecting the NCA’s ability to investigate criminals. I am sure the Committee will agree that that is really worrying. The article says:

“The…National Crime Agency has called for deeper reform of the system for flagging potential money laundering”

There are concerns out there; it is not just Opposition Members who are concerned.

I am concerned that FinTechs have to spend significant amounts of time and money sending requests to the NCA, which provides the agency with extra admin and work that it does not want to do. That time and money could be used to build new products and services that would benefit customers and businesses and therefore be more cost-effective.

Subsection (4) of the new clause would extend the DAML threshold eligibility to electronic money institutions. When the Minister replies, will he give his assessment of how many DAMLs have been submitted this year and, of those, how many have been for sums under £250? Are the numbers now in the tens of thousands? How many DAMLs for sums under £250 have been refused in the past year? Is it zero? If so, what was the associated cost to the economy of all that unnecessary paperwork, not to mention the diversion of law enforcement resources from proactive investigation to dealing with administration and the intangible costs and frustrations to customers who have had their accounts frozen with no reason given? What is the Minister’s estimate of the amount of time and money FinTechs have expended on submitting DAMLs that the NCA does not want? Does that put the UK FinTech sector at a competitive disadvantage? I realise I am asking a lot of questions, but I have just a few more. How many DAMLS does the Minister expect to be submitted in each of the next three years if the definition in POCA is not updated through the Bill?

Before moving on, Dr Huq, it is worth pointing out that the new clause does not affect the parallel requirement for regulated firms to submit suspicious activity reports to the NCA every time a firm knows or suspects that someone is engaged in money laundering, regardless of the sums involved. I reassure hon. Members that the new clause would not change the SAR process. Does the Minister think that DAMLs of under £250 provide any useful intelligence to the NCA, given that it already receives SARs and given the comments of Mr Mynot? Can the Minister address that in his response?

The second issue that the new clause addresses relates to account-freezing orders, or AFOs. The Proceeds of Crime Act includes provisions that enable law enforcement agencies to freeze and forfeit funds held in UK bank or building society accounts, where there are reasonable grounds for suspecting that those funds are the proceeds of crime. In order to freeze funds in an account, a senior law enforcement officer has to apply to the courts for an account freezing order. Under POCA, AFOs can only be used to freeze funds held in bank or building society accounts.

The Minister may be able to correct me on this, but I understand that AFOs cannot be used to freeze funds held in accounts of FinTechs, which are regulated as electronic money institutions. It seems to me that there is clearly a significant risk that criminals will exploit that loophole and run illicit activities through FinTech accounts to avoid having their funds frozen.

Subsections (2) and (3) of the new clause would update the necessary definitions in POCA, meaning that law enforcement could use AFOs to freeze funds held in FinTech accounts in the same way that they can in standard current accounts. In his response, can the Minister let the Committee know if his Department is aware of any suspected money launderers exploiting this AFO loophole? That is important if we are to move forward. What are the sums involved? Have any police forces or law enforcement agencies made representations to the Minister urging him to adopt the measure? If so, does he agree with us that the loophole needs to be closed as a matter of urgency, and that the change in definitions cannot wait any longer?

Dr Huq, we all want to make progress on this issue. I will therefore be listening very carefully to the Minister’s response to my questions. As I said at the outset, I hope that we can use the opportunity today to obtain a cross-party consensus to fix these issues during the passage of the Bill. That would be good for consumers, it would support our crime prevention agencies and send a strong message of support to our fast-growing FinTechs. If the Minister is unable to commit to looking at this issue during the passage of the Bill, we would welcome his bringing it up at a later stage. I look forward to the Minister’s response.

--- Later in debate ---

[Abena Oppong-Asare]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 9

Public country-by-country reporting by financial services companies

‘(1) The Treasury must, every year, publish and lay before both Houses of Parliament a report on its progress in pursuit of international action on public country-by-country reporting by relevant bodies.

(2) The report must include an update on whether the Treasury intends to require the group tax strategies of relevant bodies to include a country-by-country report, pursuant to paragraph 17(6) of Schedule 19 to the Finance Act 2016.

(3) The first report must be laid before both Houses of Parliament within six months of this Act being passed.

(4) For the purposes of this section, a “relevant body” means a body authorised by or registered with the Financial Conduct Authority.’—(Abena Oppong-Asare.)

This new clause would require the Treasury to report on a regular basis to Parliament on its progress, for FCA-registered and authorised companies, towards international agreement on a model of public country-by-country reporting and whether it will use powers in the Finance Act 2016 to require public country-by-country reporting in the UK.

Brought up, and read the First time.

[Abena Oppong-Asare]

I beg to move, That the Clause be read a Second time.

If agreed to, new clause 9 would be good for the country and at the same time would tackle widespread concerns about multinational enterprises exploiting the way national systems interact in order to minimise the total amount of corporation tax they pay. It would help create greater transparency around the taxation of multinational companies, achieving those objectives by requiring the Treasury to report on a regular basis to Parliament on its progress in pursuit of international action on public country-by-country reporting by relevant bodies.

Let me say at the outset that those outcomes are what we want to see. Labour’s aim in tabling new clause 9 is to use the Bill as an opportunity to help make the UK a world leader in financial transparency. I appreciate, as the Minister mentioned earlier, that financial legislation is complex, but we hope that on this occasion we will be able to receive cross-party support, as I believe we are all united in our desire to have far greater transparency.

The Government currently have the power to require multinational enterprises to publicly report their tax payments on a country-by-country basis, but so far they have resisted using that power. As I mentioned earlier, there is widespread concern about how multinational enterprises successfully exploit the way national systems interact in order to minimise the total amount of corporation tax they pay. New clause 9 is one way of tackling that. It is quite simple: it just requires public country-by-country reporting of the amount of tax multinational enterprises pay in each country where they have operations.

Schedule 19 of the Finance Act 2016 introduced a requirement for UK-headed multinational enterprises, or UK sub-groups of multinational enterprises, to publish a tax strategy. Paragraph 17(6) gives the Treasury the power to require those tax strategies to include country-by-country reports of tax paid. However, while the Government do not appear to disagree with the principle of country-by-country reporting, we still have not seen the full use of powers to require that. They say they want international agreement on public reporting first.

I am sure the Minister agrees that there has been recent pressure on the Government to use the power in the Finance Act 2016 to introduce public country-by-country reporting. It was most recently discussed during the passage of the Finance Bill this year. On Report, on 1 July, the right hon. Member for Barking (Dame Margaret Hodge) tabled new clause 33, which would have required a tax strategy published by a group liable for the digital services tax to include any relevant country-by-country reports. At the time, new clause 33 received cross-party support, including from our own shadow Chief Secretary to the Treasury, my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson), and Conservative Members such as the right hon. Member for Haltemprice and Howden (Mr Davis), the hon. Member for Thirsk and Malton (Kevin Hollinrake) and the right hon. Member for Sutton Coldfield (Mr Mitchell). I echo the comments made by the shadow Chief Secretary to the Treasury, who said:

“For years, the Opposition have urged the Government to commit to country-by-country reporting on a public basis…the way in which they have held up progress at an international level, has been a source of deep frustration to those of us who want to see far greater transparency around the taxation of multinational companies.”—[Official Report, 1 July 2020; Vol. 678, c. 367.]

The right hon. Member for Sutton Coldfield said:

“The new clause would allow Parliament, journalists, campaigners and civil society to see clearly whether these businesses are paying their fair share of taxation. If the Government accept the new clause, that would, as the hon. Member for Houghton and Sunderland South suggested, make the UK a world leader in financial transparency.”—[Official Report, 1 July 2020; Vol. 678, c. 369.]

There are companies already undertaking voluntary country-by-country reporting. For example, SSE—one of the largest electricity network companies in the UK—has been awarded the fair tax mark for the fourth year in the row. It provides a shining example of how this could be done. We are seeing companies doing this on a voluntary basis, and the new clause would ensure that all companies do it and that it is not a difficult process.

The Government have made quite a big deal about wanting to be a global leader next year—it is not just me saying that; those are the Government’s words—particularly post Brexit and with our presidency of the G7. If the Government genuinely want to show global leadership, should they not be at the forefront of pushing these kinds of measures, rather than passively waiting for an international agreement to be reached? This is a perfect time to implement this provision. It would be great if we could get just one amendment through on this occasion.

The new clause would require the Government to publish an annual report to Parliament on their progress towards the international agreement, including whether they intend to use the power in the Finance Act 2016 to require public country-by-country reporting and publish tax strategies. We would welcome the Minister taking this opportunity to give us the latest update on progress towards the international agreements on public country-by-country reporting, including what specific discussions the Government have had with international partners and whether the Government anticipate any progress on this matter in 2021.

[John Glen]

New clause 9 would require the Treasury to publish and lay before both Houses of Parliament an annual report that outlines its progress towards international action on public country-by-country reporting, and provides an update as to whether it intends to expand the existing tax strategy reporting requirement to include country-by-country reports of financial services companies. As the hon. Lady has acknowledged, the Government have championed tax transparency through initiatives at the international level, including tax authority country-by-country reporting and global standards for exchange of information, and through domestic action such as the requirement for groups to publish tax strategies.

In relation to public country-by-country reporting, the Government continue to believe that only a multilateral approach would be effective in achieving transparency objectives, and avoiding disproportionate impacts on the UK’s competitors or distortions regarding group structures. Different global initiatives to increase tax transparency and to help protect against multinational avoidance continue to be discussed in the international forums, such as the OECD, in which the UK is an active and leading participant. However, although the Government will continue to be clear and transparent about our broad objectives in this area, it would not be appropriate for the Treasury to provide a detailed report each year assessing the status and evaluating the progress of fast-moving, complex discussions that typically take place between countries on a confidential basis, nor do we think it appropriate to approach that from the narrow focus of financial services as the new clause suggests.

Although the Bill makes specific amendments to the scope of country-by-country reporting required in order to reflect the changes to the prudential regimes, the question of whether corporates should be required to publish country-by-country reports as part of their tax disclosures is a wider question that is relevant to large multinationals operating in all industry sectors, not just those in regulated financial services sectors. For those reasons, I ask the hon. Lady to withdraw the new clause.

[Abena Oppong-Asare]

I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 10

FCA recommendation to remove a self-regulatory organisation: Ministerial statement

“(1) When the FCA makes a recommendation that a self-regulatory organisation be removed from Schedule 1 to the MLR pursuant to Paragraph 17 of the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017, the Treasury must make a statement to Parliament.

(2) The statement must be made within four weeks of the recommendation being made.

(3) The statement to Parliament must set out—

(a) the Government’s response to the FCA’s recommendation;

(b) the likely impact on the sector of any action the Government is proposing to take, including—

(i) the impact of the organisation retaining its Anti-Money Laundering supervisory responsibilities if the Government decides not to remove the organisation from Schedule 1 to the MLR; and

(ii) where the Government intends to place an organisation’s Anti-Money Laundering supervisory responsibilities if it decides to remove the organisation from Schedule 1 to the MLR; and

(c) where applicable, a timescale for the removal of the self-regulatory organisation from Schedule 1 to the MLR.

(4) For the purposes of this section, “MLR” means the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”—(Abena Oppong-Asare.)

This new clause would require the Treasury to report to Parliament on its response to any recommendation by the FCA that an organisation have its anti-money laundering supervisory responsibilities removed, including the impact of either accepting or rejecting any such recommendation.

Brought up, and read the First time.

[Abena Oppong-Asare]

I beg to move, That the clause be read a Second time.

New clause 10 would be good for consumers. At the same time, it would improve the ability of our crime prevention agencies to do the job that we all want them to do—namely, to crack down on criminal activity and, in this case, money laundering. Our aim in tabling the new clause was to take the opportunity offered by the Bill to address technical deficiencies in the anti-money laundering regime. Again, I hope that we will receive cross-party support for our proposal, as I believe we are all united in a desire to clamp down on money laundering.

Tackling money laundering has a strong international aspect, but the Government need to ensure that we have clear and effective anti-money laundering measures within the UK. The intergovernmental Financial Action Task Force was founded by the G7 in 1989 to design and promote policies to combat money laundering around the world. In the EU, FATF standards are implemented by way of money laundering directives, which are designed to establish a consistent regulatory environment across member states. As I said, there is clearly a strong international aspect to the work, but it is the responsibility of the UK Government to implement effective measures in this country. Implementing new clause 10 would certainly help to address that.

There are concerns about fragmentation. Indeed, that is a long-standing concern about the UK’s anti-money laundering supervisory regime. In the UK, there are, in the accountancy and legal sectors, 22 different professional bodies with responsibility for monitoring compliance by their members with anti-money laundering measures. The EU’s fourth money laundering directive made it clear that bodies that represent members of a profession may have a role in supervising and monitoring them. As I said, however, the supervisory landscape in the UK has been criticised for being highly fragmented.

In 2015, that was recognised by the Government in the “UK national risk assessment of money laundering and terrorist financing”, the first such assessment, which highlighted the challenge of having a large number of supervisory organisations. Advocacy organisations such as Transparency International, which gave evidence to our Committee a few weeks ago, have long criticised the fragmented nature of the UK’s anti-money laundering supervisory regime.

In 2018, the Government created a new office within the Financial Conduct Authority to improve standards among professional supervisory bodies—the Minister will probably mention that—but concerns have been raised about its effectiveness. For example, the Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017 gave the FCA the role of ensuring that the anti-money laundering work of the professional supervisory bodies was effective. That would be done through the new office within the FCA, the Office for Professional Body Anti-Money Laundering Supervision. The 22 professional bodies that OPBAS regulates are named in schedule 1 to the 2017 regulations.

However, a Treasury Committee report from last year, entitled “Economic Crime - Anti-money laundering supervision and sanctions implementation”, concluded that it was not clear how the Treasury would respond to an OPBAS recommendation to remove a professional body’s supervisory role. In particular, the Treasury Committee said that there was not an adequate indication of where the Treasury would move a body’s supervisory responsibilities if it was stripped of them. It concluded that the lack of preparation created a risk that a supervisor might become “too important to fail”. That is quite concerning to me. The Committee recommended that the Treasury publish within six months a detailed consideration of how it would respond to a recommendation from OPBAS.

In their “Economic Crime Plan 2019-22”, which was published in July last year, the Government committed to meeting the Treasury Committee’s recommendation by publishing

“a detailed consideration of the process for responding to an OPBAS recommendation to remove a professional body supervisor’s status as an AML/CTF supervisor, including managing changes in supervisory responsibilities, by September 2019.”

In a letter to the Chair of the Treasury Committee dated 17 October last year, the Economic Secretary to the Treasury set out in a few paragraphs the Treasury’s response to an OPBAS recommendation. The letter provided little extra information and cannot be taken to constitute the

“detailed consideration of the process”

promised in the economic crime plan.

In September this year, the Royal United Services Institute noted:

“OPBAS are working with HM Treasury on designing a process in the event that a supervisor is removed from the Schedule 1 list of approved supervisors. This work is nearing completion, but has been delayed to autumn 2020 by the Covid-19 situation.”

In short, the Government committed to publishing a detailed consideration by September last year but still have not done so. It is now December 2020, so it has been more than a year.

Labour’s new clause seeks to underline the importance of the Treasury having a clear and credible response to OPBAS recommendations. For OPBAS’s role to be as effective as possible, it is crucial that its ultimate sanction must have credibility, so the Treasury must be clear of its response to a recommendation from OPBAS to remove a professional body’s supervisory responsibilities. Our new clause attempts to formalise the process of a Treasury response by committing the Government to publishing their response within four weeks of an OPBAS recommendation to remove an organisation from schedule 1. The response must make clear what the Government intend to do and, crucially, the impact of their decision either to leave an organisation on schedule 1 or to remove it.

We would welcome a commitment from the Minster today—this is my third time trying, with a third new clause—on when the Government will finally publish their

“detailed consideration of the process”

for responding to OPBAS recommendations to remove a professional body supervisor from schedule 1. This is also an opportunity for the Minister to set out the Government’s intended approach to complying with the FATF standards after the end of the transition period, and whether the Government intend to meet or exceed future EU money laundering directives. For that reason, the new clause really must be added to the Bill to help the Treasury finally to meet its obligations.

[John Glen]

The Government are committed to ensuring consistently high standards across the UK’s anti-money laundering supervision system, and the FCA’s Office for Professional Body Anti-Money Laundering Supervision—known as OPBAS—is a key part of that. It works with the 22 professional body supervisors to address any weaknesses identified in their supervisory responsibilities. When OPBAS has identified deficiencies in professional body supervisor oversight arrangements or practices, it has taken robust action, including by using powers of direction. OPBAS will continue to take such action with supervisors when appropriate, to ensure that consistent high standards of supervision are achieved.

Regulation 17 of the regulations that establish the role of OPBAS ensures that there is a clear route to removal if OPBAS has significant concerns about a supervisor’s effectiveness. As the hon. Lady pointed out, following the Treasury Committee’s economic crime inquiry, I wrote to the Committee to set out the process by which the Treasury would respond to a recommendation from OPBAS for such a removal. That covers each of the points that have been included in subsection (3) of the proposed new clause.

The removal of a professional body supervisor would be a highly significant decision; the Treasury would carefully consider any recommendation and, if approved, would work with other professional body supervisors, OPBAS and the statutory supervisors to ensure the continuation of anti-money laundering supervision for the affected professional body supervisor’s members. That would also require the agreement of a transition period before the removal of the professional body supervisor from schedule 1 of the money laundering regulations. It could not just be done abruptly without due recourse to what interim measures or further successor measures would need to be put in place.

It is essential that any recommendation is given due consideration and planning before a decision is announced, and the introduction of a four-week statutory deadline from the issuance of a recommendation would place that at risk. If a decision has not been reached, any enactment or publication of details of the recommendation would be inconsistent with regulation 21(2) of the OPBAS regulations, which prohibits such publication.

While any recommendation for removal would be treated with urgency by the Treasury, the length of the process would be dependent on the circumstances. We therefore believe that it would be wrong for a statutory deadline to be placed on reaching an effective outcome. In the event of OPBAS’s recommending the removal of a professional body supervisor, a notice would be placed on gov.uk once a decision on removal had been reached and, if necessary, plans would be agreed for the transition of affected businesses. I therefore ask the right hon. Member for Wolverhampton South East and the hon. Members for Erith and Thamesmead and for Manchester, Withington not to press the new clause.

[Abena Oppong-Asare]

I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 16

Consumer credit: extension of FCA rule-making duty

“(1) Section 137C of the Financial Services and Markets Act 2000 shall be amended as follows.

(2) In subsection (1A), substitute

‘one or more specified descriptions of regulated’

for ‘all forms of consumer’.”—(Stella Creasy.)

This new clause would extend the responsibility of the FCA to make rules with a view to securing an appropriate degree of protection for borrowers against excessive charges to all forms of consumer credit.

Brought up, and read the First time.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I beg to move, That the clause be read a Second time.