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.

--- Later in debate ---

[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?