Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018

Anneliese Dodds Excerpts

Monday 19th November 2018 General Committees

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve with you in the Chair, Mr Bailey, and to be sitting across from the Minister once again—it is not the first time I have done so in recent weeks, and I am sure it will not be the last.

As the Minister rightly described, this delegated legislation follows on from the Financial Guidance and Claims Act 2018. Clearly, we are not discussing that Act today— we are focusing on the provisions of the order—but I did note that the Minister mentioned cold calling only right at the end of his remarks. Of course, while we are discussing regulatory arrangements and regulatory responsibility, we need to talk about exactly what the responsibilities could be and not just who will discharge them.

A huge element of debate when the 2018 Act was going through the House was about when a ban on cold calling would be implemented. That surely is the elephant in the room when we are talking about this issue. The Minister referred to the activity of the ICO in relation to cold calling, but in the Public Bill Committee a number of hon. Members stated why they felt that the current regulatory regime was not fit for purpose in that regard. It would be very helpful to me, and indeed to other members of this Committee, if the Minister could please indicate exactly what his Department has been doing to move us towards a cold calling ban. We have discussed many times appalling cases in which vulnerable people had been targeted by CMCs, often through cold calls, so I hope that the Minister will return to that issue in a moment. [Interruption.] I am grateful to him for saying yes from a sedentary position and being willing to comment on it.

As the Minister explained, the draft order essentially transfers regulatory responsibility for the activities of CMCs to the FCA. That appears to be appropriate. The measure specifies exactly which forms of activity will be regulated. As the Minister rightly said, it will give us a more finely grained regulatory apparatus, which appears to be highly sensible. Of course, we are talking about some companies that in recent years have made enormous profits—super-profits, some might say—in respect of certain types of claims. I am sure that all of us, as Members of Parliament, have been approached by constituents who believe that they have not been treated correctly by claims management companies, and many of the cases involve a lack of communication.

Of course, on the other side of the coin, CMCs have taken aggressive action to push on to people the opportunity to make a claim, whether that is legal or not. In that regard, it is worth reflecting on what has happened in relation to travel claims, especially for holiday sickness, which have increased fivefold since 2013. Arguably, that is having an impact on the price of holidays in some sectors, which affects everybody, whether they have engaged in that activity or not, so it is right that we take action and beef up the regulation.

I have two questions about how exactly the Government envisage the new scheme operating. First, on the transfer of regulatory responsibility, the Minister set out that there will be an interim regime, but I want to focus on how that will be funded. In particular, how will the skilled staff that we surely need to discharge the regime be brought into the FCA? As I understand it, the scheme will be self-funding through the mechanisms detailed in the 2018 Act, so the £60 million or so that it will cost to deliver will be raised from the claims management companies. As the Minister mentioned, however, the new regime starts on 1 April, so how will the FCA obtain the funds in the interim? Are we confident that it will have sufficient funds?

The FCA is being asked to adopt a new responsibility at the very time it might have to deal with a very high regulatory workload in the case of a no-deal Brexit, as we have discussed in this room many times. It would be useful to hear how that activity will be paid for and resourced in the run-up to the start of April. It would also be helpful to hear more from the Minister about how the FCA’s activity in this regard will be scrutinised and overseen by his Department and in the House. We are talking about the FCA being able to put caps on fees for CMCs, which I am sure many of us would strongly support, but how will that process of oversight operate?

Secondly, the Minister rightly mentioned that not all actors delivering claims management will be specifically covered by the FCA’s regulatory regime. He mentioned the situation for solicitors, but in that connection we could also have discussed the situation for others in the legal profession, as covered by the Law Society of England and Wales and the Law Society of Scotland—the hon. Member for Airdrie and Shotts may well speak to the regime in Scotland. I would find it helpful to hear from the Minister—perhaps through a letter if he cannot talk about it in Committee—what discussions the Government have had with those actors.

Some of us might say that the responsibilities placed on the shoulders of some of those bodies, for example in relation to money laundering, have not always been discharged to the fullest possible extent. I appreciate that the Government do not want to tread on professional toes, but surely we need to find out about the engagement that is going on, if any, to try to ensure that those bodies discharge their responsibilities appropriately.

--- Later in debate ---

[John Glen]

I thank the Committee for the serious questions and the range of issues raised. I will do my best to respond to all the questions. I will start with the hon. Member for Oxford East, who asked about progress on the cold calling plan. The Chancellor announced it in the Budget and laid a statutory instrument two days later banning cold calling in relation to pensions. It will be debated later in the year and hopefully will be in force early in the new year. I texted her counterparts on the Labour Front Bench to make them aware of that.

[Anneliese Dodds]

I am grateful to the Minister for enlightening us on that. However, we are talking about claims management rather than pensions.

[John Glen]

I will move on to that in a moment. I also want to touch on the point about the ICO as an enforcer, and why not the FCA. There are two debates here. The hon. Member for Garston and Halewood asked about the FCA’s suitability. One issue that has come up—my hon. Friend the Member for South Norfolk mentioned it as well—is the ICO’s experience and powers to enforce the restrictions on CMC cold calling. The ICO can levy fines of up to £500,000 for breaches of the Privacy and Electronic Communications (EC Directive) Regulations 2003. It has the international reach to enable enforcement action when companies are operating abroad, and perhaps calling my hon. Friend.

The ICO and the FCA work together to establish whether the claims management company has FCA authorisation to carry out marketing activity. The FCA will be able to consider whether the CMC is in breach of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and will sanction appropriately. It is really about the concentration of the FCA’s skills and experience in this domain.

--- Later in debate ---

[John Glen]

I will move on sequentially through the points made.

On the question about why the Government are not banning all cold calls, which I think is behind all this, we are determined to tackle CMC cold calling and pensions cold calling, but a balance needs to be struck between ensuring that consumers are adequately protected and providing the right conditions for the legitimate direct marketing industry to operate. I recognise that there is a debate about the extent of the coverage and which sectors should be covered, but we took a view about what should be included at this time so that we could make progress and lay the order. We are actively prepared to consider further sectors that should come under the order.

The hon. Member for Oxford East raised the issue of the interim regime’s funding. The FCA is making a one-off levy from April 2019, and it will continue to collect fees from industry. Having recently closed a fees consultation, it will release a policy statement later this year about the funding mechanism for that transition period.

[Anneliese Dodds]

I asked specifically about the resources available to the FCA for creating that interim regime at a time when it is under enormous pressure in other ways. Is it to be expected to fund all that through its existing budget and receive that levy only after 1 April? Surely that could pose some problems.

[John Glen]

The FCA has made provision for the funding of the activity, and it will make a policy statement later this year about how it will work after April.

I was asked about the impact of new FCA regulation on the fees, so I will give more detail. To cover the costs of the transfer, the firms will be required to pay a one-off levy spread over two to three years, which will be collected by the FCA. Clarification will be given later about the regime following that.

On the point about solicitors’ exemption, which goes to the point about regulatory arbitrage raised by my hon. Friend the Member for South Norfolk, there are strict controls in professional regulation under the SRA. The intention has been to have a tougher regulatory regime for CMCs without burdening solicitors with unnecessary regulation, because we believe that they are robustly regulated. Whether the two are aligned is a legitimate issue that needs ongoing review. We are concerned about the risks. The order is designed to close the potential loophole through a provision that removes the exemption for legal professionals if their claims management activity is not part of their ordinary legal practice. That is what has been happening: they have not been subject to FCA oversight because, in effect, they have been doing something that they could say was under their regulator but that the FCA has nothing to do with.

The FCA and SRA have therefore committed to reviewing their memorandum of understanding where it sets out how they will work together, to ensure that the regulation is effective and avoids precisely the matter that my hon. Friend raised.

In relation to FCA scrutiny, there is a statutory duty on the FCA to report to the Treasury, and that will cover CMC activity. The FCA will do that regularly—on an annual basis. Additionally, there are informal, three-weekly conversations between me and the FCA, and obviously I will be subject to scrutiny in the House. That mechanism is a real one: I am obviously pushing the FCA to get this right and it is keen to get it right.

The hon. Member for Airdrie and Shotts asked about the conversation with the Scottish Government. During the passage of the Bill that became the Financial Guidance and Claims Act, the Scottish Government confirmed that it would be proportionate and relevant to bring Scottish CMCs within regulation. This Government have had further, ongoing discussions with the Scottish Government and the Law Society of Scotland throughout the drafting of this legislation, and we are very happy that they are, obviously, included in it.

My hon. Friend the Member for South Norfolk asked about the current status of someone making a cold call. The 2018 Act prohibits anyone from making an unsolicited marketing call in respect of claims management activity. As I have said, that is enforced by the ICO, which has the power to levy large fines and has international reach. Under this statutory instrument, any advertising of claims management services must have prior authorisation by the FCA. Breaching the regulations and failure to have FCA authorisation will be an offence. There has been greater clarity about telephone numbers having to be published, but the ICO is the place where my hon. Friend could take the calls that he is facing.

[Anneliese Dodds]

I am grateful to the Minister for being so generous with his time. May I try to clarify something? Surely we are talking about two different forms of authorisation. This may have been in the Minister’s mind anyway when he was talking; I am not sure. There is authorisation by the regulator, but also by the person who is being rung by the claims management company. Surely they are two quite different things.

[John Glen]

Somebody should not be called unless they have given explicit permission to be called, so it is an illegal act if that permission has not been given.

My hon. Friend the Member for South Norfolk asked whether this regulation covers banks. No, they will be covered by their FCA authorisation and supervision, so they are covered but not under these provisions.