Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Monday 26th November 2012 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, I wonder if my noble friend could deal with one aspect of his explanation of government Amendment 94A. It may be that I misunderstood what he said. Is this to be a general removal of power—that is, a backstop—or is it going to be available in individual cases? It is not clear from his explanation whether it will be gone for ever or if an individual case could say to the Treasury, “We are going to be unfairly treated. Please step in”. At the moment, the former is a very blunt instrument and a lot of eggs could be broken before you get back to a more satisfactory situation if you felt that the regulator was using the power unwisely, unfairly and disproportionately. Could he explain the point when he comes to wind up the debate?

[Baroness Hayter of Kentish Town]

My Lords, I thank the Minister for introducing these amendments and I hope I am right in understanding that the backstop power is for the whole thing and not for individual cases. I see that the Minister is nodding in agreement that I have the interpretation right. I thank him for that now being an affirmative order if it was to be changed. I am confident that the public interest will not bring it back to this House, so I am quite relaxed about it.

The other amendments aside from the first one relating to the backstop power are about ensuring some independence on the issue of warning notices, or in the case of Amendment 97ZA in the name of my noble friend Lord Eatwell and myself, on the whole disciplinary process. This amendment would ensure that a properly constituted and independent determinations panel would be responsible for dealing with all cases presented by the FCA or indeed by the PRA. As I explained in Committee, that is in effect the procedure introduced for the Pensions Regulator in 2004. It is seen as robust and independent, and it has indeed turned down some of the cases that have been taken to it. I would have to say, of course, since I was a member of it, that it was effective. It has been a useful way of ensuring that there is confidence that when cases are brought by staff, they are well scrutinised.

As the Minister has said, the government amendments in this group other than the first one on the backstop go some way to answering our concerns. However, I do not think that they go quite far enough, although I guess that we should be grateful for some movement. They introduce a degree of independence to the consideration of a case brought by FCA or PRA staff, but they fail to ensure the continuance of the RDC to give its statutory backing. We hear what the Minister says about the statement of the current FSA on what the future FCA will voluntarily choose to do, but I hope that the Government do not at some point in the future rue the day that they failed to protect the RDC’s existence and independence. For the moment, however, perhaps the noble Lord could confirm the Government’s commitment, not just that of the FCA, to the continuance of the RDC.

[Lord Sassoon]

My Lords, I think that I can probably be briefer than I had intended in responding to these amendments. I will confirm again that the backstop power is, as my noble friend has characterised it even though it may not be what he would like to see, a “gone for ever” backstop. However, I hope it will give comfort that we will keep under review the way this important new power is operated.

On Amendment 97A, I am grateful to my noble friend Lord Flight for saying in terms that he is reassured by the effect of Amendments 97ZA and 97ZB, to which I spoke at some length, so I will not go over that ground again. The issue about the difference between the FCA and the PRA here is a simple one. We see the FCA as being the regulator that would issue these types of warning notice and to which the new power applies, and we do not actually see the PRA doing it. That is why we have constructed things as they are and we can rely on the approach of the RDC continuing as we have discussed. But if the PRA were to get into the warning notices business, which we do not anticipate, there are provisions in the Bill that would cause it to look at how it would construct an independent process that might take it down an RDC-type route.

I am not sure whether the noble Baroness, Lady Hayter, was expecting me to say more about Amendment 97ZZA because we have agreed that we went over this ground on 15 October. I am grateful to her for what she said about the government amendments, so unless she would like me to go on at some length, I think that we have probably done it justice. However, I am grateful for this short debate.

--- Later in debate ---

[Lord Whitty]

My Lords, with most of this Bill being about regulators and the whole structure of regulation, I am returning to a proposition which would in due course return some power and leverage to consumers directly. As we just heard from my noble friend Lord Kennedy of Southwark and others speaking on claims management companies, it is often the case that in widespread abuse by financial services operators a common issue between a number of consumers, often a very large number of them, is that the process of seeking any redress is lengthy and complicated if conducted on an individual basis. It is also open to the intervention of the rougher end of the CMC market, which manages simultaneously to exploit the consumers and the providers.

In Committee, I tried to do the Government’s work for them and offered them an easy way of taking on board a system of collective action and redress by consumers. I proposed a fairly detailed set of amendments, which were almost precisely the same as those that were included in the 2010 Bill, that were dropped without debate in the wash-up prior to the general election. At that time, I proposed that various amendments should immediately be adopted by the Government. They had cleared the Treasury hurdle. They had cleared the hurdle of parliamentary counsel and could have been adopted.

The Government resisted that, and I am suggesting that we push it back to the Government to come up with an alternative version. I am giving them more flexibility to draw up their proposals, so this amendment would require them to come up with secondary legislation which would effectively give collective redress and action provisions for consumers in the financial area three months after the passage of this Act. To give them more time would probably not be sensible, given that had these provisions existed before the great PPI scandal, a lot of it would have been resolved by now.

In the last debate in Committee, the Minister referred in rather Delphic terms to a more general approach to collective redress for consumers, which was being considered by his sister department, BIS, in its approach to consumer affairs. He did so in a way which implied that it was probably going to act on that in the near future. It is true that BIS has included collective action and redress in its consultation paper on the consumer landscape. Now, we have before this House a Bill from BIS dealing with enterprise and regulatory reform, which has not a word about consumer protection and certainly none about the ability of consumers to engage in collective redress. This is in marked contrast to the determination rapidly to reduce protection for employees in that Bill. Consumers hardly get a look in.

I come back to the need for particular provisions in this Bill for the financial sector. There is an additional point in this amendment, which was not in my previous amendment, but was in an amendment proposed at that stage by my noble friend Lady Hayter. It is that this provision for collective action should also apply to small businesses. Like individual consumers, they are often faced with mis-selling or other misbehaviour by financial services, which affect a large number of small businesses, but which would be expensive and time-consuming for any individual business to pursue. If there were a framework, whether on an opt-in or opt-out basis, for small firms to take action against the financial institution or institutions, again their detriment could be met much more rapidly. Hence, I am proposing that the Government cover them within this review, with the requirement to report back and present regulations in three months’ time.

I hope that the Government at the very least accept a need to move in this direction either individually in respect of the financial sector, which has some peculiarities, or more generally. If it is to be done solely on the financial services front at this stage, then perhaps they could accept my amendment as it stands and we will in due course receive the regulations. If they want to move more broadly, I would welcome that, but I have received no indication as yet that the Minister’s colleagues are proposing in any very near-time dimension to bring such broader provisions forward. I hope that either the amendment can be accepted or that we will have a firm commitment to broader action in the near future. I beg to move.

[Baroness Hayter of Kentish Town]

My Lords, I support the amendment moved by my noble friend Lord Whitty. To some extent, the third arm of this amendment has been partially agreed by the Government, in that their proposed criteria for designating super-complaints to the FCA include representatives of SMEs—although they wisely exclude authorised bodies from this category. I have two questions to pose.

First, what is the timescale for the designation of SMEs as super-complainants? In his response in Committee, as my noble friend Lord Whitty has just reminded us, the Minister, Lord Newby, said that the Government hoped,

“to publish their response”—

to the consultation—

“before the end of the year”.—[Official Report, 15/10/12; col. 1351.]

Unless the Minister is to forego his Christmas holiday altogether, this is going to stretch even his capabilities, as responses to the super-complaint issue are due only on Christmas Eve. Amendment 106 adds a timescale to the exercise. Perhaps he could either give a definite date or accept the timescale suggested by my noble friend Lord Whitty. There is some urgency to this. The FSA estimates that more than 40,000 interest-rate swaps were mis-sold to small businesses. It is silly for each of them to have to take individual action over this, so only collective cases will satisfy. We see no reason why each individual or firm must make a separate claim. I cannot see why the onus should not be on the banks, which are the major mis-sellers, to write to those to whom they have mis-sold and repay the monies due to them. We understand that some banks have now agreed to do this, but faster action is required. We hear that ominous noise of foot-dragging. Small businesses simply cannot carry this unwarranted expenditure; they need a more rapid remedy.

My second question relates partly also to Amendments 105E, 105F and 105G, which deal with super-complaints with profits. As the Government have moved some of that oversight to the jurisdiction of the FCA, our original request was superfluous and we shall not press those amendments. However, the question remains how either individuals or SMEs can pursue, through their representatives’ use of a super-complaint, market failures where these relate to the bit of the banks’ activity that is under the PRA’s remit.

As noble Lords will recall, the Government have resisted our attempts to have any channel of communication between the Financial Services Consumer Panel and the PRA. Nor will they have access to super-complaints to the PRA and the collective action suggested by my noble friend Lord Whitty. It rather smacks of the banks’ regulator being deaf to alleged failures in any of the banks serving the needs of their customers.

Hitherto, the Government have suggested that all such representations can be made through the FCA, even though it will have no responsibility for PRA areas and even though it will have a wider remit than just the interests of one group of clients. It will anyway be very much at arm’s length from actual consumers. The issue remains of how collective action can be taken, particularly with respect to banks. Can the Minister therefore offer some reassurance that the PRA, in its regulation of banks and with the new Governor in place, will keep the interests of consumers central to its thinking and policy, so that further consumer detriment does not arise?