Financial Services and Markets Bill

Baroness Bennett of Manor Castle Excerpts

Committee stage
Monday 30th January 2023 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in the second day of Committee on this Bill. In doing so, I declare my financial services interests as set out in the register. In speaking to my Amendment 219, I give more than a nod to the amendment in the name of the noble Lord, Lord Sharkey, which he set out so eloquently; had I had a pen, I almost certainly would have signed it and put my name against it.

In simple terms, this is very straightforward: SMEs are the backbone of the British economy. They are the largest private employers and the big companies of tomorrow yet, in this area, we are leaving them high and dry and at the will of many of the schemes that were set out so well by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Bowles. I know that the noble Baroness, Lady Kramer, has all those unfortunate instances tattooed and ready to come out at any moment—rightly so because they all demonstrate that, when things go wrong, they go badly wrong. All too often, it is individuals and, in this instance, SMEs that are on the wrong end of it without a right of action against the FCA. My amendment would provide that right of action for breaches of the FCA handbook; I believe that it is similar to the amendment set out by the noble Lord, Lord Sharkey.

The Government talk, rightly, about the need to grow the UK economy. That growth will come largely from SMEs. Does my noble friend the Minister agree that they deserve our support? By simply accepting either of these amendments or, indeed, tabling a government amendment on Report, they would enable commercial loans over £25,000 to be brought within the perimeter and give SMEs not only the protection but the support that they should have from the regulator—and through that, from the Government—to enable that growth, which we all need for the UK economy and society. I ask my noble friend whether she will look to engage and potentially bring a government amendment to this effect on Report.

[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?

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[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—

[Baroness Bennett of Manor Castle (GP)]

I think the whole thrust of the noble Baroness’s argument is that the non-statutory protection effectively offered to SMEs through the ombudsman and independent dispute resolution procedures is essentially the same as having statutory protection. She suggested that statutory protection would cost more, but if the protection is equal through these other mechanisms, surely the costs of the banks providing the documentation and the system to enforce those mechanisms would be very similar to the statutory costs.

[Baroness Penn (Con)]

The noble Baroness touches on one possible difference in documentation needing to be provided where something is regulated versus where it is voluntary. That comes back to the question of SME lending having increased costs for banks and alternative finance providers. This can be passed on to businesses in the form of higher fees and interest rates, and it can affect the availability of credit for small businesses. The noble Baroness, Lady Kramer, mentioned start-up banks and challenger banks. When we have discussions elsewhere on other issues related to financial services regulation, we also discuss how we create a more competitive environment in the banking sector, as smaller banks can struggle to deal with regulations. This is a general point about balance.

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[Baroness Hayman (CB)]

My Lords, as this is my first contribution in Committee, I remind the Committee of my interests as set out in the register, particularly Peers for the Planet. I also have a son who is employed by Make My Money Matter, an organisation that campaigns in this area.

We have had two powerful speeches in support of this amendment, and I do not need to detain the Committee long in registering my support for it. It comes back to that very basic issue that both noble Baronesses dealt with: transparency. It is only with information that individuals can make meaningful choices about the investment of what is their money. It is tremendously important that we do not fall behind on this and assume that decisions that will be made are nothing to do with the little people who actually put the money into the companies which make the decisions. As I understand it, other jurisdictions have found ways through technology and standard reporting procedures to allow this to happen as a matter of course. I would be interested to hear from the Minister why we cannot do that in this country too.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I will briefly express support for this amendment, which has already been so powerfully argued for. I would have signed it had I caught up with the legislative deluge.

I want to make two additional points. First, the Pensions Regulator’s most recent survey of defined contribution schemes found that more than 80% did not allocate any time or resources to managing climate risk. It would be interesting if we were to see the way in which fund managers were voting, not only to have that recorded, but I would assume that they would have to have some kind of thought behind it to explain what was recorded. The transparency might force some more thinking to happen, which would clearly be a good idea.

I also want to ask a question of the proposers of this amendment because I was slightly puzzled by the information on request element of the amendment. The noble Baroness, Lady Sheehan, noted that US regulators forced this to be published openly as a matter of course. It seems that that would be the logical thing, that this should be available not only to clients but to anyone who might like to make an assessment of how companies and asset fund managers are behaving and why they are behaving in that way. Perhaps in my classic Green position, I wonder whether we should not go further, and, rather than saying “to clients on request”, say that this should be freely published and available to all.

[Baroness Kramer (LD)]

My Lords, with three outstanding speeches, I have very little to add other than to say that I very much support this. However, I have a question for the Minister. I was just looking up the definition of a fiduciary duty, which is when someone

“has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.”

We know that many people feel that there is an implied and inherent fiduciary duty between the person who puts their money into a pension fund and those who act to invest it—I see that the noble Baroness, Lady Noakes, is shaking her head. I know that in various pieces of legislation there has been an attempt to clarify that. However, surely at the very least there is a responsibility to transparency. This seems to me a very mild but important principle to establish. I suspect the Minister would be very concerned if she were to put her money into an entity and did not know, within reasonable boundaries, how it was being invested and used and what impact it had. Surely, these amendments are minor and mild but important.

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[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.

[Lord Northbrook (Con)]

My Lords, I listened with interest to my noble friend Lady Noakes moving her amendment. Clearly, consumer credit is at a record level, due, I am sure, to a long period of low interest rates. I just find, probably deliberately, that the amendment is a little vague. Like the noble Lord, Lord Tunnicliffe, I like the idea of focusing on specific issues such as buy now, pay later. Perhaps more power should be given to the FCA to look at institutions that are offering huge rates of interest on loans.

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[Baroness Sheehan (LD)]

I thank your Lordships. In my noble friend’s absence, I will speak briefly in support of the amendments to which she has added her name.

I turn first to Amendment 69, which should not have been necessary if the Government truly understood how intertwined the twin threats of climate change and nature loss are. They are two sides of the same coin. Climate change is destroying nature and the destruction of the natural world is accelerating climate change; it is us humans who have set this downward spiral in motion, and it is us who can put a stop to it. My Amendment 69 would add nature to the new regulatory principle on net-zero emissions; I tabled it purely for the sake of completeness and to make the point that the Government have, at best, been careless in leaving out nature from the single line that they have devoted to this issue in the entire Bill. I quote from the Explanatory Notes:

“This clause embeds the UK’s net zero target into the regulatory principles for the PRA and the FCA.”


It patently does not do that. My tabling this amendment in no way takes away my support for the series of amendments in this group tabled by the noble Baroness, Lady Hayman, which is a far more satisfactory way of embedding the net-zero target and nature loss into the Bill. She has already introduced her amendments in such comprehensive style that I have little left to say on them.

In any case, let me turn to those amendments in the names of the noble Baroness, Lady Hayman, my noble friend Lady Northover and the noble Lords, Lord Vaux of Harrowden and Lord Randall of Uxbridge. I strongly support their Amendment 44, as well as the consequential Amendments 53, 56, 62 and 68. That is because Amendment 44 would introduce a climate and nature secondary objective for the FCA, alongside the competitiveness and growth objective. That has to be the correct place for this objective. It must be clear that it is an overarching objective for the two most important regulators in the financial space.

Government is as government does. Failure to put in place firm rules on the drivers of the economy, the institutions of the financial services and markets sector, would be irresponsible on the part of the Government. The reason why this is important is because there will inevitably be difficult decisions ahead, where the fork in the road points one way to a short-term gain but with negative effects on the environment while the other fork points to a safer, greener investment that will mature later but will be beneficial to future generations. Decisions must be made to favour the greener, more sustainable path. There must be no incentive to take the quick buck to the detriment of the carbon budget or nature.

Amendment 65 in the name of the noble Lord, Lord Tunnicliffe, is not in this group and will appear later. However, it is interesting because it probes such a dilemma, albeit from the point of view of potential conflict between primary and secondary objectives. I look forward to the debate on that amendment.

Where in the Bill are the safeguards for future generations, the respect for nature and the recognition and acceptance of the findings of the seminal Dasgupta review? Nowhere. It unleashes the power of money to do its worst and seek short-term profit. I say to the Minister, for whom I have a great deal of respect, that a reference to the medium and long term does not cut it without clear direction to the financial sector that green growth and international competitiveness in long-term, net-zero and nature-compatible investment is where sound investment decisions must be directed.

In the US, the IRA—the Inflation Reduction Act—is showing the power of government to unleash private investment into this century’s big growth opportunities. All that UK investors need is a regulatory nod from the Government, then they will take money to where it can deliver good green growth. Growth is the holy grail and future growth will be green; of that, there is no doubt. We will let UK Ltd down big time if we do not put in place policy and regulatory levers to deliver the confidence that business needs to move forward.

In the blink of an eye, the US has transformed international investor confidence in renewable energies. The EU will follow suit. Where are we in giving the clear direction that business is calling for? Chris Skidmore’s review and the report from the Industry and Regulators Committee by the noble Lord, Lord Hollick, made it clear that there is a large quantity of money waiting for a clear signal from the Government to invest in the UK. In the words of the Minister at Second Reading,

“this Bill is a landmark piece of legislation—the most ambitious reform of our financial services regulatory framework in over 20 years.”—[Official Report, 10/1/23; col. 1331.]

Our Government cannot let this historic opportunity pass by without adding those words to a third secondary objective: climate change and nature.

I have added my name to Amendment 208 in the name of the noble Lord, Lord Tunnicliffe, for the simple reason that the Government have stated their ambition for the UK to become the world’s first net-zero financial sector yet we are still waiting for an updated green finance strategy. For the regulators to be able to do their job on net-zero and nature targets, we must have sustainable disclosure requirements and a green taxonomy.

Finally, I support the amendment in the name of my noble friend Lady Northover, which seeks to place a requirement on the PRA and the FCA to report on the ways in which they have promoted and incentivised green finance and green investment. It would be very useful if that information were placed in Parliament.

To conclude, we do not have the luxury of waiting another 20 years for the next financial services Bill. This is the Bill that will decide whether the transformative change that we need in our big investment decisions gets the nod from the Government. The answer has to be yes.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise to speak to Amendment 69A in my name and briefly express my support for all the other amendments in this group. They have been very ably and clearly introduced.

I had something of a flashback to the Pension Schemes Bill, which was the first time I spoke in this Room. I believe that that was the first time that climate had ever appeared in any finance Bill. The noble Baroness, Lady Sherlock, did a great job of supporting me through that: I had no idea when to speak so she gave me a nudge with her elbow. That was three years ago. We have now got to the point where we are trying to get nature to join climate, which is so obviously necessary.

As you might expect from a Green, my Amendment 69A goes further. I do not know whether the Minister can respond to this but the fact is that the economy and financial system are complete subsets of the environment. There is no financial system on a dead planet, to amend a phrase. All the amendments on climate and nature are clearly essential but we know that they do not fully cover the way in which we are breaking the limits of this planet.