Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Wednesday 25th January 2023 Grand Committee

The ultimate point here is that in the Bill there is a plethora of regulations that we will be asked to agree to in order to give Ministers essentially executive power and, at the end of the day, all we as a Chamber can do is raise questions but accept that the Government will always get their way. In that sense, the noble Lord, Lord Sharkey, has done us a great service in opening our debates on such an important issue.

[Baroness Altmann (Con)]

My Lords, I too congratulate the noble Lord, Lord Sharkey, on his amendment. I agree with his explanation of why parliamentary scrutiny is so important and his interesting explanation of the choice of words he has used in his amendment. I accept that later on, as my noble friend Lady Noakes said, we will debate parliamentary scrutiny once again, but in my view it is absolutely vital that we in this House recognise the dangers coming at us from various legislation that is taking away Parliament’s future ability to oversee and scrutinise important legislation.

I also understand what my noble friend Lord Trenchard said about the importance of allowing competition. However, we must not lose sight of the fact that what is sometimes called regulation may of course be inconvenient for the financial services providers and hamper the ability for innovation and free-for-alls to try different things, but it is also relevant to think of regulation as consumer protection. These are rules that will stop financial services companies taking advantage of consumers.

Asymmetry of information in financial matters is obviously something we are all too aware of, but just doing away with regulation, rushing to get rid of all the EU regulations without proper scrutiny and saying that the Financial Conduct Authority must work to a deadline, otherwise it will drag its heels, misses the point. If there is a forced deadline that precludes scrutiny and consideration of what these regulatory changes will mean for the general public or even more informed investors, without considering those risks, one has to ask whether it is resourced enough to do that. If not, which most of us would probably suggest is the case, what other elements of its duties will not be attended to while it is rushing to perform this job to an artificial deadline? It is a massive task—I respect that.

We need to take seriously the thrust of the remarks by the noble Lord, Lord Sharkey. I also look forward to hearing my noble friend’s remarks about the Government’s own amendments.

[Lord Naseby (Con)]

My Lords, I was one of the 34 who took part in the debate on secondary legislation, and I previously had the privilege of being on the Public Accounts Committee for some 12 years.

The debate on those two reports was an absolute watershed. Here is a golden opportunity to ensure that this Bill, which is so fundamental to the growth of our country, particularly the City of London, at a particular time can be pioneering. I am sorry to load that on to my noble friend; at any other time it might not be loaded on to her.

The key elements are there: secondary legislation basically means that those of us here in Parliament, in both Houses, have an opportunity to debate any changes made to a Bill. If I had to take issue with the noble Lord, Lord Sharkey, it is that he has in his amendment, at proposed new paragraph (b), the word “significant”. One company’s “significant” might be insignificant to another, and vice versa, so I do not think that is quite the right word to use.

We will go through this Bill in detail. Others have made their points, but for me—I did previous work with two quoted companies and a friendly society in the role of chairman—this is an opportunity. We must recognise that growth for our country is fundamental. That fundamentality is, to a fair degree, influenced by the Bill before us.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to take part in this debate on the second day of Committee. I have to say that it has been an extraordinarily powerful debate thus far and an absolute indictment of the UK financial sector. I begin by apologising for not taking part in the first day of Committee, despite having signed a number of amendments. I am afraid I was taking part in the debate on the so-called Genetic Technology (Precision Breeding) Bill, and it is impossible to spread oneself across too many places.

The case for these amendments, in particular Amendment 40 in the name of the noble Lord, Lord Sharkey, to which I am pleased to attach my name, has already been powerfully made, by the noble Lord himself and by the noble Baroness, Lady Bowles of Berkhamsted, in the debate on the previous group of amendments. I will make a couple of additional points. In particular, I draw on a survey by the Federation of Small Businesses, published in December, which found that 30% of small and medium-sized enterprises thought that they had signed financial contracts that contained unfair clauses and provisions.

The survey also found that successful applications for loans and other financing for SMEs had fallen precipitously. Less than half were successful in the third quarter of 2022; before Covid, two-thirds had been successful. One of the things we are always hearing from the Government is, “Rely on the market! People can shop around and choose”. We have already heard the reality of the inequality of arms—as the lawyers would put it—between a small business and a giant financial-sector company. But there is also no opportunity: small and medium-sized enterprises have to take money from wherever they can get it, if they are lucky enough to get it at all.

What we have here is a practical reality, as the noble Lord, Lord Holmes of Richmond, just set out. The financial sector is not meeting the needs of the real economy, and that issue underlies all our debates on the Bill. Is the financial sector there as a high-stakes casino in which a few people can make a lot of money and the rest of us have to pick up the pieces when it all goes wrong, or is it there to meet the needs of the real economy and give us a genuinely sustainable—in all senses of the word—society?

Although we have perhaps not needed him, it is a pity that the noble Lord, Lord Sikka, is not currently in his place, as he could also have contributed very powerfully to this debate. What we have is a litany of disaster. The FCA has a terrible track record. Your Lordships’ Committee is trying to do something to fix that, and, boy, does it need fixing.

[Baroness Altmann (Con)]

My Lords, I too support both amendments in this group. I congratulate my noble friend Lord Holmes on his Amendment 219, and the noble Lord, Lord Sharkey, on Amendment 40 and the way in which he explained it. I urge my noble friend the Minister to take seriously the comments that have been made and the reference to the Treasury Select Committee, which recommended just this kind of change.

I would like to understand from my noble friend: if the Government do not agree with the Treasury Select Committee, why? How do they believe that SMEs are protected against the kinds of scandals and bad behaviour that have clearly been rife within the sector over a number of years? Does my noble friend seriously believe that small and medium-sized enterprises are equipped enough to stand up against the information and resources available to the financial services industry to avoid the kind of problems that we have seen in the past?

[Baroness Kramer (LD)]

My Lords, the last group of amendments and this one are not identical and cover different aspects of abuse by financial institutions. Were the Government to accept them, together, or to draft their own versions, that would completely change the playing field. Small businesses would be in a position whereby they could breathe easily and make business decisions, and not worry that, embedded in whatever product they were purchasing—

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[Baroness Penn (Con)]

I note that it is a voluntary body. I do not have the list of those who have signed up to it to hand. If it differs from those outlined by the noble Baroness, I will write to the Committee, but she may well have listed those who have signed up to it. I note, however, that the combination of that service, and the scale of those involved in it, with the ability to go to the Financial Ombudsman Service means that research suggests that more than 99% of UK businesses can access independent dispute resolution. We should look at the size of the customer base as well as the number of organisations signed up to such dispute resolution mechanisms. I will write to the noble Lord, Lord Sharkey, on the number of cases taken by the organisation.

[Baroness Altmann (Con)]

I thank my noble friend for giving way, but perhaps I could press her a little more on the effectiveness of the Financial Ombudsman Service in providing a deterrent against poor practice in the areas where we have seen it in the past. The noble Baronesses, Lady Bowles and Lady Kramer, and the noble Lord, Lord Sharkey, have outlined instances of banks not treating their customers well. Does my noble friend agree that having a statutory duty written into the legislation would be much more of a deterrent against the behaviour we have seen than the potential threat of someone going to the Financial Ombudsman Service?

[Baroness Penn (Con)]

That is one element to be considered. I was pointing in particular to the combined role of the FOS and the Business Banking Resolution Service in providing a route of redress for over 99% of businesses. In part, it comes back to my question in relation to Amendment 40 from the noble Lord, Lord Sharkey, on the Government’s commitment to regulating business lending only where there is a clear case for doing so, given some of the increased costs that bringing SME lending into regulation would bring. I return to the point that we currently have a consultation out on the Consumer Credit Act in which there is a question on business lending; the Government are considering this through that consultation.

With that, I hope that the noble Lord, Lord Sharkey, will withdraw Amendment 40 at this stage—

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[Baroness Penn (Con)]

As I hope I was setting out for the noble Lord, Lord Sharkey, there are different definitions of businesses that can have different protections and routes of redress within a system of small business lending. The system that we have is aimed to be proportionate, focusing on the smallest SMEs which are at the most risk. On the difference between the voluntary measures that are in place and bringing it within the regulatory perimeter, we are not saying that those are entirely equivalent protections but that they are proportionate protections to the risks faced by those firms. I set out different thresholds in my answer in relation to both those businesses that are protected under the Consumer Credit Act, which are sole traders, loans under £25,000 and a few others there, and businesses that are able to access either the FOS or the Business Banking Resolution Service. There are other thresholds too. Therefore I appreciate the point that that is different from the definition of a SME that the noble Lord asked about. The system is designed to be proportionate to the size of the SME and the protections it affords to them as regards business lending.

[Baroness Altmann (Con)]

I thank my noble friend for giving way once again. This is an important area for the whole financial services framework that we have in this country. I think that the noble Baroness, Lady Bowles, the noble Lord, Lord Sharkey, and my noble friend Lord Holmes are all trying to press the Minister on the issue of protection before scandals happen so that our system can be trusted more. The point here is about deterring financial institutions from even trying to undertake these actions by having stronger regulatory protection upfront, rather than this or that right of redress after the event has happened.

[Baroness Penn (Con)]

I understand my noble friend’s point, and of course the Government also consider that when we look at what to bring into the regulatory perimeter or the right of redress, both as a route of redress and as a point of deterrence. The Government take all those factors into account when considering this question.

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[Lord Tunnicliffe (Lab)]

My Lords, I shall speak to both the amendments in this group. I was not going to speak on the amendment of the noble Baroness, Lady Noakes, because, frankly, I did not understand it as well as it was just explained. The key point she is making is that there is a whole series of things about credit. It is complex, and that allows the Government to go behind the screen of saying, “We need this review; we need more time to think about it”, and so on. The gripping words she used were that society needs this stuff up to date as quickly as is reasonably practicable. There is no area where that could be more true than buy now, pay later. We are in a period of enormous stress for poor people. They desperately need reasonably priced credit because they just do not have any reserves.

In this area, there is this wonderful illusion that the credit is free. People do not lend money for free, except, perhaps, foolish parents. Buy now, pay later depends, as far as I can see, on the borrower failing to obey the rules, and companies make their money out of the default situation. They also make some money out of what they charge to retailers, but it is a very uncomfortable area.

I recognise that buy now, pay later can be a lower-interest borrowing option for some consumers, and that it is an area where a lot of innovation takes place, but neither of these points means that it should not be properly regulated. The Government have again and again committed to bring in regulation. Indeed, we are talking about 18 months since we got the first assurances from the Government that this would be subject to proper regulation. The Government have not acted, and harm is happening all the time. For example, Citizens Advice research has found that nearly two in five buy now, pay later customers do not fully comprehend the nature of the loan they are signing up to and often vulnerable shoppers are signing up to financial products that they do not fully get. What are the Government doing and which buy now, pay later companies are they meeting to ensure greater transparency?

We need to act in this area. I cannot understand how the Government can expect the assurances they give on these sorts of legislation to be taken seriously in future with the delays that have appeared in this area.

[Baroness Altmann (Con)]

My Lords, I support both amendments in this group. I think my noble friend Lady Noakes’ Amendment 43, which she so eloquently explained, is very much needed within our financial services system. I agree that it is possible that we should consider introducing into the wording greater parliamentary scrutiny rather than the discretion that may otherwise be given wholly to the Treasury, but I think the explanation by the noble Lord, Lord Tunnicliffe, of the situation with buy now, pay later is a good example of the kind of amendment that my noble friend wants to put in which would have facilitated some faster action had it been put in. I am not sure, but with the Bill we are going back time and again to the asymmetry of information and power between those transacting with financial services in general and the financial services industry that is putting products out to those customers. I think these amendments would be very useful additions, and I look forward to hearing from my noble friend.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to express support for Amendment 212 and to make a couple of points about it. I noticed that a couple of days ago the New York Times reported that buy now, pay later is an industry facing “an existential crisis”. I also note that various market analysists are reporting that this is a huge area of growth for the UK economy and the UK financial sector. Putting those two things together is a cause for concern not just for individual consumers, as the noble Lord, Lord Tunnicliffe, set out so clearly, but for the structural impact on the UK economy.

A survey was done for a household debt report by a company called NerdWallet. I cannot attest to the value of the survey, but it confirms what I have observed: 20% of women and 11% of men have used buy now, pay later in what amount to loans. So there is a gender aspect to the use of buy now, pay later. We look at many other areas of our system where women are financially disadvantaged but there is real cause of concern here.

My final point concerns something that really puzzles me—I understand that we may not be able to get an answer on it now. It was reported recently that a company called Zilch, which has 3 million buy now, pay later customers, is planning to report to all the major credit agencies the amount of debt that is being held by its customers. I think customers’ understanding is that it does not show up on their credit records—this is usually a soft search—so they are able to keep borrowing money through this mechanism and it does not show up. I do not quite understand how, if something was taken out on that basis, it can suddenly become declarable to credit rating agencies. This is an area where it is clear that regulation is necessary.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

Amendment 231 basically covers a subject whose ground I have already covered, so I will not add any more other than to say in conclusion that these three amendments seek to empower consumers and create pressure points to force the suppliers of financial services and regulators to act with integrity and honesty.

[Baroness Altmann (Con)]

My Lords, I added my name to three of the amendments in this group. I will speak to Amendments 225 and 226 first. The noble Baroness, Lady Kramer, has expertly explained the issues surrounding the Equitable Life compensation scheme and the problems suffered by more than 1 million people who lost money through what was reputed to be an extremely strong and stable investment company. Even though the Parliamentary Ombudsman ruled that this was due to official maladministration across a wide range of actors, about 900,000 people have received only 22% of the compensation due.

I understand that taxpayer money is not a bottomless pit and that it is difficult when there is such an enormous number of people involved for any Government to consider this kind of compensation, but we have a Parliamentary Ombudsman for a reason. If a Parliamentary Ombudsman rules in a particular direction, it is troubling to me that the Government would suggest that they disagree with their own referee and therefore are not going to comply. The amendments from the noble Baroness, Lady Kramer, would require the Government to honour the recommendations of the ombudsman. I urge my noble friend to look seriously and carefully at how much has been paid out and to whom, and whether the Government can justify not complying with the recommendations of their own ombudsman.

I have personal experience in the case of the Financial Assistance Scheme where the Parliamentary Ombudsman ruled that government must compensate. The then Government in 2005-06 simply said that they were not going to and that they disagreed. We had to take the Government to court. They lost in the High Court and then in the Court of Appeal. It was only after that and at the risk of the complainants losing their homes and everything else, after also having lost their pensions, that in 2008, thankfully, a proper redress scheme was set up. So it is possible, but it was very much dependent on the Secretary of State at the time being willing to agree.

Amendment 120 in the name of the noble Lord, Lord Tunnicliffe, to which I added my name too, refers to the Financial Conduct Authority’s Consumer Panel. The amendment would like to see the Consumer Panel reporting to Parliament. At the moment this excellent panel is doing quite a bit of work trying to look at the interests of consumers. Clearly, consumers as a group and individually do not have the resources that the financial services industry has in order to promote their interests relative to those of the financial services companies. The Consumer Panel has often come up with important recommendations to the board of the FCA to look at and act on behalf of consumers who have been wronged in different ways. But Parliament generally does not tend to hear about what the Consumer Panel says, and the board of the FCA is at liberty not to agree or comply with recommendations of the Consumer Panel.

It would be helpful for parliamentarians, particularly Members in the other place representing their own constituents who may have been wronged in these cases, to know what has been considered by the Consumer Panel. I hope that my noble friend might consider this very reasonable amendment, which is just asking that Parliament is directly informed by the Consumer Panel of its concerns at actions taken by the financial services industry to the detriment of consumers.

That leads me finally to the other amendments in this group. The Consumer Panel has recommended that a duty of care is required in the financial services industry. As we know, Section 29 of the Financial Services Act called for a duty of care, and Parliament was supposed to introduce a duty of care, yet what we have is this consumer duty rather than a fully fledged duty of care.

Amendment 76 calls for a duty of care, and the amendments tabled and so eloquently explained by the noble Lord, Lord Sikka, Amendments 229, 230 and 231, also represent what could be considered a duty of care—as, indeed, does Amendment 77 from the noble Lord, Lord Davies, which talks about consumers with mental health issues, and how the industry looks after them. These are all extremely important for the Government to consider in strengthening the protection for the public.

To give one brief example, if noble Lords will indulge me, most recently we have had the problem of liability-driven investments and the dislocations in the government bond markets caused by the market turmoil a few months ago. For many investors in personal pensions—where the Financial Conduct Authority oversees the supposed “know your customer” and new duty of care requirement—the products and offerings given to ordinary members of the public in pensions under auto-enrolment and in other areas have default options, which the majority of workers are put into. They typically use what is called a life-styling or target date approach, which means that, in the approximately 10 years running up to retirement, those customers are switched out of assets with higher expected returns such as equities into what are meant to be safe assets such as bonds, in the expectation that they will buy an annuity when they reach retirement—and annuities are priced relative to bonds, so everything should be fine.

There is no duty on those pension providers to ask a customer once a year, for example, if they are planning to retire at the date that they are gearing towards or if they plan to buy an annuity. They may plan to keep the money invested. If that is the case, we have seen millions of people—potentially, certainly hundreds of thousands, although we do not have the number—who have been coming up to retirement and lost a huge chunk of their pension, because the price of those supposedly safe assets has fallen significantly. They were never asked whether they were going to buy an annuity, and the majority of them will not do so. No provider had any requirement to check with their customer, on something as fundamentally important as this, whether they planned to buy an annuity or even to take out any money at all at the date that the product automatically switches them to. Nothing has been updated on that since the pension freedoms were introduced.

That is just an example of where, I hope, my noble friend will understand that a duty of care must extend beyond where the industry is today, so that the interests of individuals are taken into consideration by the financial services industry.

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[Baroness Penn (Con)]

My Lords, the concept of a duty of care in financial services may be different to the concept of a duty of care in other contexts. This was considered very carefully and consulted on by the FCA in 2019 and in 2021. It considered these questions and the issues we have discussed in the Committee today.

[Baroness Altmann (Con)]

I thank my noble friend for giving way. On these consultations, did the financial services companies generally respond not wishing to have the right of redress? Were the consumer organisations in favour of it?

Financial Services and Markets Bill

Baroness Altmann Excerpts

Committee stage
Tuesday 7th March 2023 Grand Committee

[Lord Lilley (Con)]

We ought to allow the industry to invest as long as we are phasing out demand. If it invests too much, it is its problem. If it invests too little, it is our problem.

[Baroness Altmann (Con)]

My Lords, I declare my interests as set out in the register. I support many of the amendments in this group. My Amendment 241A is in this group. I have added my name to Amendments 201 and 237, which require FCA guidance about long-term returns for occupational pension investors. I think that is very important when considering climate change and is very relevant to the remarks of my noble friend Lord Lilley. I have also added my name to Amendment 235 as I think it is equally important for institutional investors in the UK to be equipped with some green taxonomy so that we have some standards by which we can measure the impact of climate investment.

As regards the issues raised by my noble friend, particularly, perhaps, in relation to Amendment 168, when I read that amendment it seems to me to be calling for a review. It calls for the FCA to review and perhaps guide pension schemes and insurance companies, which have very long-term liabilities, on assessing the long-term risks of investing in assets such as fossil fuels. There is a widespread opinion suggesting that over the long term, whether that is 20 years or 30 years —those timescales are relevant for Solvency II and the annuity books of insurers, for example—there is a significant danger in relying on the continued thriving of those large energy companies.

It makes sense. We have been taken by surprise too many times in the financial world by supposedly very small long-term risks which materialise in a cliff-edge event that people had not been prepared for. Whether or not the review concludes that there should be any change, it is appropriate that this review should be carried out, so I support the amendment, but I understand the points made by my noble friend. Perhaps, on a shorter-term timescale, given the need for fossil fuels and the work that is being done by those large companies to try to transition to more green energy, that is an issue that needs to be carefully weighed up by any investor who is considering the potential returns from their investment.

In the interests of time, I will now speak to my Amendment 241A. I hope that my noble friend will be interested in this amendment and, indeed, that other Members of the Committee might consider that there is merit in this proposal. It is a relatively modest reform. It would be deregulatory. It supports the transition to net zero and nature preservation and it would encourage innovation. I hope it would garner more of our domestic institutional asset base to be used for the kinds of investments that all of us who are concerned about the long-term impact of human activity on the climate and nature would want to see happen.

I thank the Public Bill Office and Susannah Street, as well as Peers for the Planet, for their assistance in trying to ensure that the amendment is in scope of the Bill, which was quite a feat. It is a probing amendment; I am not wedded to the wording, but the principle of the proposal would make it easier for funded occupational pension schemes to join together to establish fund managers under a lighter-touch regime that already exists in order to invest in and support climate and nature protection. We all know that there is a growing need to find the funding to rebuild, repurpose or have new infrastructure for low-carbon and nature-friendly projects. Indeed, nature’s impact on and interaction with climate change and net zero is increasingly recognised. These issues feature in the other amendments I have attached my name to, so I hope that the scientific and political consensus that we need urgent action might help my noble friend and the Committee recognise that this could be a win-win for pension funds to get better long-term returns, for pensions to be perhaps better than they otherwise might be, and for the economy.

Much of the investment needed to reach net zero will be in very large long-term projects. It is not always easy to find the money. Normally, perhaps, with a Government who were in a much stronger fiscal position than most western Governments now are, we might look to the majority of this being funded by government, but that is less likely at the moment. Yet we have in this country this enormous pool of long-term assets that is currently being encouraged to invest in assets with a much lower expected return or so-called safe assets—gilts and corporate bonds, for example—shunning long-term growth with equities and projects such as the one I have in mind for this type of approach. Only 100 schemes or so have more than £5 billion worth of assets. Even with the kind of forecast consolidation, it is unlikely that we will have very many of the £5 billion-type scale that is normally suggested to be required to put forward a prudent, risk-diversified portfolio of such infrastructure and other protective investments.

My amendment would facilitate asset pooling for the smaller pension funds as well, so they can all join together in FCA-authorised investment managers specifically for pools of pension assets to benefit from and contribute to the benefits for green growth and sustainable long-term returns for the specific purposes set out in proposed new subsection (3) of my amendment. The Local Government Pension Scheme is already starting to do this, but private schemes would have to use commercial fund managers, which often either deters such investing or incurs much higher costs, whereas big schemes such as USS and NEST are already looking to invest or have the expertise to do so, but they are not joined with the smaller schemes.

I hope that the currently existing lighter-touch regime that the FCA offers in its occupational pension scheme firm rules, which currently apply only to fund management firms that are wholly owned by one pension fund, could be applied to a combination of pension funds that are investing for their own purposes in the various schemes that belong to it. It is not commercially available or available to other members of the public, but it is for long-term pension investing.

I would be grateful if my noble friend considered this modest reform, or, if she feels that there is some flaw in the wording of the amendment that could be changed and still facilitate this, I would be happy if she, or indeed any other noble Lords, wanted to meet to discuss it. As I said, it is deregulatory, it supports the aims of net zero and nature preservation, it would encourage innovation and it should provide better diversification and therefore long-term risk reduction for a number of occupational pension schemes which otherwise could not take advantage of it.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I had the privilege of adding my name to this amendment because it seems to me, as has just been said, that this is such an important Bill for our nations. It also has this distinguishing feature. Regulation of financial services and matters of this kind is extremely complicated; it is very easy to get them wrong. Why do the Government not feel that they need the expertise of this House, which was so evident during the Grand Committee hearing on aspects of financial services? That completely defeats my understanding of the way in which we should have good government.

[Baroness Altmann (Con)]

My Lords, I add my support to the amendment so excellently moved by the noble Lord, Lord Sharkey, and I thank my noble friends Lord Hamilton and Lord Naseby, who have spoken about the dangers that are entailed if we do not introduce measures such as this amendment into the Bill. There is a risk of executive power-grab. I am not at all saying that that is the intention, but the possibility of that would be opened and surely, as we have just argued in the previous legislative discussion, it is so important that we ensure that Parliament has control, not a few Ministers. That is what I hoped we were going to do when we were revising the laws that had been adopted from the EU.

[Baroness Kramer (LD)]

My Lords, I can add very little to the extraordinary speeches we just heard, many of them quite brief but absolutely targeted and to the point. I simply want to add just two more issues that perhaps have been mentioned but not stressed.

The first is that a carve-out of financial services from the REUL Bill is not the carve-out of some minor area of insignificant interest. Financial services are in effect our largest and most significant industry at this point in time in the UK and will be for many years in the future, and indeed the products that come from financial services are the lifeblood of our economy, both for businesses and for ordinary people. Therefore, scrutiny of decisions that are made within this arena surely has to be a central and significant responsibility of Parliament.

I say to the Minister, who always prays in aid consultation, both formal and informal, in the process of making change, when did consultation replace scrutiny in the mind of this Government? Parliament is not a consultee but the body that is democratically elected to make the key legislative decisions about the future of our country. Its relegation to the role of a consultee, which in effect happens and which this legislation would in some ways counter, is, I believe, completely unacceptable to most people when they have the opportunity to face up to it and think through this issue. Therefore, we on these Benches are very much in support of these amendments, and if necessary we will go through the Lobbies if the Minister is unable to accept at least a significant one of them.

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[Lord Davies of Brixton (Lab)]

My Lords, I support the amendments in this group, particularly Amendment 93. It is always a pleasure to follow my noble friend Baroness Drake, who has said it all. I will join on the back of her comments to say that I strongly support the approach she has taken.

I also support Amendment 113 from the noble Baroness, Lady Hayman. I respect the extent to which some concerns have been taken into account to make it clear that the interests of the members are paramount in the amendment—that is crucial. On the idea that pension funds should have a more active role in growing our economy, obviously its time has come. It is not new—people have been making suggestions about it; I have been involved in it in the past—but there now seems to be a confluence of views that something must be done. However, it has to be done in a way that respects the fiduciary duty to put the interests of members front and centre in the decisions that are taken. I take a fairly broad view of what constitutes members’ interests, but it is the members and their trustees acting on their behalf who have to take that decision, rather than bodies which do not have the direct results inflicted on them if they get it wrong.

It is important to stress that any ideas have to be practical and effective. I have some doubt as to whether the problem we face is about the supply of money; rather, it is about how the money will be used. Putting these proposals forward without having the other side of the bargain improved will be a problem. It is also important to stress that there are very different types of schemes, and they all have different investment needs. Again, whatever guidance is given has to respect the particular types of schemes.

I have one concern, which I would like the Minister to address, about the phrase “have regard to” in relation to guidance. It appears in the government amendment and in Amendment 113 put forward and supported by my noble colleagues. The problem with the “have regard to” is that it is a legal lottery. It is very difficult to know in advance what exactly it means, so it would be very helpful to me, and I hope the House, if the Minister could say something about that. Is it, as is sometimes suggested, like the accounting requirement—you comply or explain—or do you have to, in some way or another, follow the requirements as they are set out? What does “have regard to” mean in this legislation? It would be good to have clarification during the progress of the Bill, because the phrase appears several times.

[Baroness Altmann (Con)]

My Lords, I congratulate my noble friend the Minister on her Amendment 4. I am sure that it is very well-intentioned, and it meets some of the concerns that were clearly expressed in Committee. I welcome the update that will be coming from her on the green taxonomy; I believe that there will be a consultation on that. There is also the new green finance strategy, which has been published. They are all welcome.

Amendment 4 is welcome, but, as the noble Baroness, Lady Hayman, explained, although it will ensure that the Treasury produces guidance or requirements for sustainable investing by pension schemes and others, it would appear that the FCA and the PRA may not have the powers to issue that guidance. So, once the Treasury has produced its recommendations, we will still need to legislate. Can my noble friend the Minister confirm that that is the case, and that we will need further legislation if we want to implement the impacts of Amendment 4 through to pension schemes?

I have added my name to Amendments 93 and 113 in the name of the noble Baroness, Lady Hayman. Amendment 93 deals with the investment duties of pension providers and investment managers, and Amendment 113 deals with the investment duties of occupational pension trustees and managers. Clearly, if we are to make progress in line with the Government’s laudable objectives—and I congratulate them on all the work they have been doing, including some of their world-leading work on trying to ensure that pension schemes invest more in line with green objectives and sustainable investments for the long term—the amendments will ensure that the FCA and the PRA can make those rules. The amendments are very reasonably drafted; the FCA and the PRA may make these rules, but they do not require them at this stage to do so. The trustees and investment managers must then have regard to the rules, but, as the noble Baroness explained, they can explain why they are not going to implement the rules. However, at least we can set up a system where the trillions of pounds of long-term investment money in pension schemes can assuredly do more to protect the planet and provide investment opportunities that will help with social objectives for this country.

I do not have a problem with the concept of government directing pension schemes to invest a certain proportion of their assets, if necessary, in green, sustainable and socially desirable projects, including infrastructure, forestation, nature preservation and so on. At least 25% of all pension schemes—we are talking about hundreds of billions of pounds—has come from the taxpayer in the first place in the form of tax relief. Given that 25% of everyone’s pension is tax free, that is money that was spent by taxpayers. Given the budget circumstances that the country faces, and as taxpayers would otherwise be funding these projects outside pension schemes, I do not think that it is impossible to justify the idea that, should the private sector not be forthcoming with its investments in these vital elements for future growth and for a sustainable future for us all, the Government might themselves decide to require it.

These amendments will at least pave the way to ensure that there is more chance of these huge amounts of money, which are put aside for millions of people’s retirement income later in life, being invested in a way that will benefit them and the economy, as well as ensuring that there is much more and better protection for the planet, which I know that the Government wish to achieve. So I support Amendments 93 and 113, and I have added my name to Amendment 114, so excellently explained by the noble Baroness, Lady Wheatcroft, again facilitating rules that it will be necessary for schemes to follow, should the Government desire that—which is the indication that I have had from my noble friend the Minister and which is implied in the Government’s Amendment 4.

[Baroness Meacher (CB)]

My Lords, I shall speak to Amendment 91—this is a somewhat variegated group. The amendment was very ably introduced by the noble Baroness, Lady Boycott, and I am privileged to be asked to speak to it—it has widespread support across the political parties and within the public, as well as from key figures such as Sir Ian Cheshire and financial institutions representing no less than £1.18 trillion in assets under management and advice.

The UK is in the invidious position of being a leading financier of global deforestation and linked human rights abuses. This country provided an estimated $16.6 billion to businesses implicated in deforestation over five years to 2020. How many of us have money in pension funds contributing to the £300 billion of UK pension fund money supporting high deforestation risk companies and financial institutions? The Government claim that the answer to this problem—if you like—is the Taskforce on Nature-Related Financial Disclosures. However, the Government’s own expert Global Resource Initiative task force has already explicitly rejected the TNFD’s disclosure-based model as a solution. It has told the Government that new due diligence laws are needed to stop UK finance flowing to deforestation —and that is precisely what this amendment does.

I am aware of the noble Lord, Lord Field’s rather wonderful Cool Earth charity, which finances indigenous tribes in the great forests to retain the trees and live within them. Amendment 91 is vital to prevent all Cool Earth’s good work being undermined by UK financial institutions investing in high deforestation risk companies. The UK led the Glasgow leaders’ declaration on forests and land use at COP 26, making a commitment to halt and reverse deforestation and land degradation by 2030, including by realigning financial flows. This amendment begins to meet that commitment; surely, this should not be neglected. My only regret is that the amendment allows for a 24-month delay before due diligence obligations come into force to allow the sector to prepare—and, of course, I understand that sectors need to prepare. But this issue has been debated in Parliament for some months. I wonder how far the sector has reached in its preparations and whether it would support a reduced delay. How does such a delay fit with the view of experts that commodity-driven deforestation must end by 2025 at the latest to limit global warming to 1.5 degrees centigrade? A 24-month delay takes us right into 2025. I understand that agricultural expansion drives more than 90% of tropical deforestation. Again, the amendment is business friendly and widely supported, and I hope that the Government will support it and accept it.

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, as a founding member of the Regulatory Decisions Committee of the Financial Services Authority who served from 2001 to 2006, I reflect on the fact that at that time the FSA took extraordinary care in preparing the documentation that was submitted to the RDC. This clearly had an effect on the way in which the RDC prepared itself. This is an important element in ensuring that our regulatory system is not only fair but seen to be fair. Having read with care the pamphlet from the noble Lord, Lord Tyrie, I support the arguments that he made there, which I am sure he recently repeated in the House.

[Baroness Altmann (Con)]

My Lords, I support all the work that the noble Lord, Lord Tyrie, has put into this amendment. He has worked for so many years and has so much knowledge on this subject. If my noble friend cannot accept the amendment today, I urge her to come back at Third Reading if possible, perhaps with the Government’s own proposals for at least a consultation, which would be a reasonable compromise. There is a strength of feeling on this issue.

As the noble Lord said, the FCA has already been clipping the RDC’s wings. We can see dangers and that there is huge support for proper independence on a statutory basis. We do not want the City to become an oligopoly; we need to protect some of these smaller firms for healthy competition. What is the Government’s objection to this proposal?

[Baroness Chapman of Darlington (Lab)]

My Lords, we commend the noble Lord, Lord Tyrie, on his amendment and on using it to raise important questions. We understand that concerns have been raised about the perceived watering down of the RDC’s role within the FCA. While we know that the Government respect the operational independence of the FCA, we hope that the Minister is able to say something about the regulator’s recent decisions on the RDC, which are causing substantial concern.

The FCA believes that the current balance of responsibilities is correct and that the recent reforms were necessary to ensure quicker decision-making. However, it would help if the Minister could outline what steps, if any, the Treasury might take in future, should it come to the view, if it has not today, that the system is not quite working in the way that it should.

Financial Services and Markets Bill

Baroness Altmann Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Bridges of Headley (Con)]

My Lords, I will speak very briefly and I apologise for being late.

The Governor of the Bank of England was just in front of the Economic Affairs Committee and our final question was on CBDCs. He gave an answer that I thought was lukewarm at best in his support for them, which was very interesting in and of itself. Before going any further, I remind the House of my interest as an adviser to Banco Santander.

The last time I debated a CBDC, I think there were five of us in the Chamber. Just as I was summing up my speech, suddenly the Chamber filled up, and I thought: “My God! Everyone is suddenly interested in my thoughts on CBDCs”. Only then did I realise that there was just about to be a debate on Brexit for the 231st time, and my views on CBDCs were completely and utterly irrelevant.

As my noble friend has just so eloquently summarised, this is an issue that we really need to focus on a lot more in Parliament as a whole. You may be a fan of CBDCs—here I am looking at my friend the noble Baroness, Lady Kramer, who I think is more persuaded by the merits of them and may see them as the best thing since sliced bread, or perhaps in this case one should say decimalisation—or, like me and my noble friend Lord Forsyth, you may be of a more conservative disposition and need to be convinced of the need for change. Whichever view you have, as my noble friend has just said, it is imperative that Parliament has the chance to debate, scrutinise and vote on primary legislation before a CBDC is introduced.

My noble friend has summarised many of the most important points, including privacy, financial stability and the impact of bank disintermediation. There is also the entire issue of how a CBDC might affect the operational independence of the bank, as my noble friend pointed out. One estimate is that a CBDC could—I stress “could”—increase its balance sheet by £400 billion, and it would obviously give the bank entirely new tools in monetary policy.

Then there is the entire issue of cost. I have to say that the words “IT infrastructure project” are possibly the most expensive three words that you can put together. I am very concerned about how much this will cost. No one seems to be able to say how much it will cost or who will pay.

Then there are issues of cybersecurity. The Bank states that new infrastructure needed to support a digital pound would make

“an attractive target for hackers and fraudsters who wish to steal funds”

and

“may become a target for hostile attacks with the aim of disrupting the system and, potentially, the wider economy”.

According to GCHQ, while a digital currency presents “a great opportunity”, it goes on to say:

“If wrongly implemented, it gives a hostile state the ability to surveil transactions”.


Those are just some of the enormous issues that a CBDC raises, and why we must have primary legislation to be able to scrutinise and vote on all this. I am very grateful to my noble friend the Minister, her colleague the City Minister, Mr Griffith, and the Chancellor for focusing on this.

I should actually say that the Chancellor may be forgiven: I am christened James George, so he might have just been signing this late at night, even though I have known him for 20 years. I will put that to one side. I got a very nice letter from the Chancellor, as did Harriett Baldwin. The problem is that, although it is signed by Jeremy Hunt, I feel that it is almost signed by Lewis Carroll because it gives you the feeling that it comes from Alice in Wonderland at a certain point.

If I may, I will detain your Lordships by reading two paragraphs:

“The Government and the Bank of England are at an early stage of policy development and have not made a decision on whether or not to introduce the digital pound”—


that we all know. It goes on:

“As a result, we do not yet know whether a digital pound will require primary legislation”.


When you read that back a few times, it begs a question, and I would be grateful if my noble friend the Minister, when she sums up, could answer it. Could a digital pound be introduced without primary legislation? This seems to suggest that potentially you could have one and it would not require primary legislation.

Be that as it may, the letter then goes on to say:

“However, in recognition of the potential significance of a digital pound, and the views of Parliamentarians, the Government commits to introducing primary legislation before launching a digital pound”.


So even though one might not need primary legislation, the Government are committing that there would be primary legislation.

Obviously, that is a great step forward. My problem is that it is still is not watertight. Much as I would like to say that my noble friend, Mr Griffith and the Chancellor are going to be there for years to come, I somehow do not know whether that is going to be the case. That is why I very much echo what my noble friend has said, and would like the Minister to go as far as possible in saying why it is not the case that they are not willing to put this into primary legislation. Moreover, I would be very interested to know the view of the Labour Party and the Liberal Democrats on this, and whether they too would say that they will commit not to introduce a CBDC without primary legislation.

I end by echoing my noble friend. The introduction of a digital pound—a “Britcoin”, as you might call it —would be an enormous undertaking. We cannot and we must not leave it to be passed by statutory instrument one wet Wednesday afternoon in the Moses Room. That would be an absolute disaster. It needs to be debated on the Floors of both Houses and voted on.

[Baroness Altmann (Con)]

My Lords, I too apologise to the House for being late.

I have added my name to my noble friend’s amendment. I urge my noble friend the Minister and the House to think very carefully about what possible advantages there could be relative to the disadvantages of having a central bank digital currency. We have seen so many people lose so much money, and so many money launderers, thieves and so on make so much money from digital currencies. This may be one of the biggest scams of the century.

It is very difficult to see why we need digital currencies at all. The risks for money laundering and economic crime, the lack of transparency and security for anyone putting money in, and the opportunity that this would offer to rogue states and actors to try to undermine our entire financial system require significant warning. The possibility that this could be introduced without primary legislation seems to me to be unconscionable and a dereliction of our duty to make sure that we are looking after the currency of this country.

[Baroness Kramer (LD)]

My Lords, I had the privilege of serving on the Economic Affairs Committee, with the noble Lord, Lord Forsyth, as chair, when it produced the report. Your Lordships will gather that my views on whether we adopt a digital currency are distinctive somewhat from others who have spoken today. It is not that I am some enthusiast for it; I recognise all the issues and disadvantages that have been named today, particularly financial stability and privacy. However, 18 countries will be adopting a central bank digital currency this year—including China, initially for its domestic market. It has been piloting it in 12 cities, but eventually it will become an offering that it takes to the many other countries where it expects to exercise influence, in both Asia and Africa.

I am afraid that we are facing potentially a King Canute situation: we may not particularly want such a currency but might simply have to accept that to remain in the forefront and in play within financial services and as a major exporter and participant in global trade, we may have no choice but to go down this route. But I absolutely share with every other speaker the view that this should be determined by Parliament in primary legislation. The issues are sufficiently fundamental and far-reaching. They carry risk, and they require judgment and perspective—and it is in debates in the other place and here that that can happen.

It seems to me that something so fundamental as currency surely is the responsibility of a democratic Parliament. It cannot be transferred, in effect, to either the Treasury to run through an SI, or to the regulators to not even bother with an SI but largely to put it in place through various regulatory changes. So, here we have absolute common ground; this should be on the face of the Bill. I am concerned that this may be the last piece of legislation coming forward where we have the opportunity to put it in the Bill. There might be a further opportunity in a year’s time, but it depends on the speed of change that we experience.

Guarantees from the Government would be good. I am glad that a letter has been written to Harriett Baldwin and the noble Lord, Lord Bridges, but we need something that recognises the significance and importance of doing this through primary legislation.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

My Lords, I support the amendment. I still think of myself as a relatively new Member of the House, so it is useful to remind the House of my lifetime spent working in the pensions industry, broadly in support of scheme members. I have been a scheme trustee, I have chaired the Greater London Council investment panel and I have advised trustees of pension schemes as the scheme actuary. I am just stating my expertise here.

I support the amendment because I think a review is required. I take on board the remarks about the thin end of the wedge, but unless we have the review those concerns cannot be addressed. As the noble Baroness, Lady Bowles, said, there is now a big conversation about using pension scheme money to promote the British economy. There is actually a long history of that sort of proposal going back over many years, but it seems to have reached a crescendo over the last year or so.

It is essential that we have a review. What is also essential, of course, is that the review is undertaken by those who know what they are talking about, but that has not necessarily been true about all the comments made so far. For example, I draw the attention of the House to the recent useful report produced by the Pensions and Lifetime Savings Association—not a body that I consistently agree with—on supporting pension investment in UK growth and thinking up quicker and simpler ways to promote pension fund investment in our economy.

I was going to raise two issues. One has already been explained clearly by my noble friend Lord Eatwell: the funding standards that have been established work against the principles that I am sure we all support. Another problem that we have is the Conservative Government’s introduction of freedom and choice. It is difficult to oppose freedom and choice but, when you come to pensions, which are long-term arrangements depending on long-term investment, giving people freedom of choice weakens the very basis upon which they are being organised. It is all very well saying to pension funds, “You’ve got to invest in infrastructure”, but if the members of that scheme have the right to pull their money out at any time, it is very difficult to take the long-term view. That is a fundamental incoherence behind the so-called policy of freedom and choice. Those issues need to be addressed in the review.

I also hope that the list of consultees for the review is not a complete list; to the extent that it is possible to consult the scheme members, they should be consulted as well. I also hope that the issues can go somewhat broader than those listed in the amendment.

In general terms, a review is needed, and I hope it will lead to the objective being clearly set out of promoting the UK economy.

[Baroness Altmann (Con)]

My Lords, I fully support and have added my name to this amendment. It is a pleasure to follow the noble Lord, Lord Davies. We both go back a long way in the pensions industry. My entire career has been in pensions—examining occupational pension schemes as an academic, then managing occupational pension investments in the City, then advising schemes and Governments. I have also been a trustee on investment committees for pension schemes.

I have to say that the current position that members of pension schemes find themselves in—both members of defined benefit schemes and members of too-often-forgotten defined contribution schemes—has not been positive in terms of the experience of the 2022 markets. As we have heard, trustees and managers of pension schemes have been encouraged to believe that the right way in which to invest a pension fund is in supposedly low-risk—which actually also means relatively low-return —investments, rather than in the traditional and older-fashioned way of managing schemes that persisted until the noughties, which was to try and maximise returns.

We have now moved to a position whereby we were supposed to be minimising risk, but I argue that that entire movement away from supporting the British economy and away from supporting UK equities and UK growth assets has been underpinned and misled somewhat by quantitative easing. The Bank of England’s policy, which effectively offered a natural large buyer that underwrote and underpinned the government bond market, perhaps led people to believe that that was the best or safest way in which to invest pension funds. That was partly because the long-term value of the liabilities, as well as their present value, is discounted and measured as of today by using the gilt yield or bond yield measure. In corporate reporting it is double-A corporates; in actuarial valuations it is typically gilt yields.

In 2022, conventional gilts lost 20% and index-linked gilts 30% of their value. The FTSE 100 rose a little. Yes, smaller companies did not do so well, but the idea that pension schemes were investing in a low-risk manner was actually confounded last year, and I would argue that, as we move into a post-QE world and as we have recognised and I have been warning since 2011, or even earlier than that, the policy of quantitative easing is a significant danger for pension scheme investments and members.

We must recognise that we do not fully understand what investment risk means any more. The capital asset pricing model is based fundamentally on the idea that gilt yields are the lowest-risk assets and all assets are more risky—even if they offer more returns, potentially they are more risky—and may need to be considered with a little more circumspection.

That leads on to the idea that, if we do not quite know whether gilts and fixed income are indeed low risk in the way that we thought they were and they have been in the past—because central banks are going to need to offload at some point and are certainly no longer underpinning the markets—diversifying investments and supporting the domestic economy in the way that this review would be investigating must come into the public debate.