Financial Guidance and Claims Bill [HL]

Baroness Kramer Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Monday 11th September 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, Amendment 62 seeks to make it a criminal offence for a person to mimic, impersonate or behave in a way which indicates that they are giving advice and guidance on behalf of the single financial guidance body when they not in fact giving guidance on its behalf and are not authorised to do so. This is not a novel proposal. Under existing legislation, it is a criminal offence to impersonate Pension Wise. This provision would not stop every organisation seeking to use or mimic government initiative statements to give credibility to their approach to attract members of the public, but it would be a powerful deterrent. A deterrent is definitely needed because the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s trust by misleading them into believing they are acting under an authorised government initiative can be just dreadful, leading to irreversible financial losses, life-changing losses, debt and more.

Those vulnerable to the activities of the misleading, mimicking guidance operators are not only the struggling, the stretched and those with more basic levels of numeracy and literacy, although their needs are very important; in the context of finances, those individuals who are vulnerable and at risk go up the income chain as consumers deal with products and services that can be diverse, complex and rapidly changing. Those with retirement savings, for example, are usually people who have typically had good and sustained periods of employment over their working life and have usually compulsorily or voluntarily set aside money aside for their later life. These impersonators can be ingenious in their hunt to claim fresh victims, as a recent press release from the Pensions Regulator demonstrated when it warned that,

“rogue pension websites that are carrying anti-scam messages to try to trick consumers into believing that they are legitimate businesses”.

Some even imply they are regulated by carrying warning messages designed to prevent people falling victim to scams. These imitators are using material owned by the regulators or other government initiatives to impersonate and mislead the public. Therefore, in this instance, a mechanism designed to protect consumers is now used to dupe them.

The deterrent of criminal proceedings is needed not only to protect the public and the integrity of the services of the new financial guidance body but to protect the legacy names of its predecessor bodies, such as Pension Wise and the Pensions Advisory Service, names which the public will continue to recollect for some time before they recognise and internalise the name of the new body. It must be a criminal act to mimic not only the new brand but any of the existing brands that will move into the new single financial guidance body.

The Government thought it necessary to make an explicit criminal offence to imitate Pension Wise but no provision is contained in the Bill for it to be an offence to mimic the new financial guidance body. At Second Reading the Minister commented that there was no need for such a criminal offence provision in the Bill, as:

“The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws”.—[Official Report, 5/7/17; col. 946.]


However, that view was not considered sufficient to protect the public from operators imitating Pension Wise—such imitation was made a specific criminal offence. I remain concerned that the absence of a specific provision to make it a criminal offence to mimic the new financial guidance body is a weakness in the Bill. Why was it considered appropriate to create a specific criminal offence of imitating Pension Wise rather than relying on existing fraud and copyright laws? Which existing legislation would ensure that any form of imitation of the new financial guidance body was a criminal offence, and why is that not referenced in the Bill? How will the Government ensure that imitating any of the existing brands that will move into the new single financial guidance body, including Pension Wise, will continue to be a criminal offence? I beg to move.

[Baroness Kramer (LD)]

My Lords, I strongly support the amendment moved by the noble Baroness, Lady Drake. This is an area where we need belt and braces—every mechanism that we can to make the new body and the services that it will deliver resistant to the scammers, who are ingenious beyond the capacity that most of us find credible, until we experience or hear about a scam ourselves.

In many cases, when people seek advice or guidance over an important matter in their lives, they turn to an organisation in which they have built trust over many years, where they have a whole series of experience and where they have neighbours and friends who share that experience. From that, they can be quite informed in choosing to whom they turn. However, that tends not to be true in the kind of issues that this body will deal with. People who are under debt pressure often panic when they finally reach the moment when they feel they must turn to somebody. It makes them particularly open to scammers, who will do things such as charging them, taking commission and exploiting their vulnerability at that moment. In the area of pensions people are exceedingly confused and, again, are hesitant to turn to names that they might know or which are well established for fear that they will meet a sales opportunity. Therefore, someone who sets themselves up as providing impartial advice suddenly becomes productive. Again, they have no testing mechanism due to previous experience of that body.

Therefore, in supporting the noble Baroness, Lady Drake, on this amendment, we very much seek belt-and-braces protection for consumers, recognising that people are increasingly vulnerable to scamming, particularly with modern instruments such as the internet. The Government need to be motivated to make sure that real and significant protection is in place.

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[Baroness Drake]

My Lords, Clause 6 requires the single financial guidance body to set and publish the standards that it will meet in the provision of information, guidance and debt advice. It is specifically required to obtain the approval of the FCA to those standards. Clause 7 requires that every three years the FCA must review whether those standards are appropriate, review how they are being monitored and enforced, and make recommendations. Amendment 68 would place a requirement on the FCA that, when discharging its duty to approve these standards, it will act in the interests of consumers and promote financial inclusion. The intention of the amendment is to strengthen the remit of the FCA, in this instance, to act in the consumer’s interests.

The single financial guidance body is an organisation whose function is expressly to support individual members of the public. Its objectives are to improve individuals’ financial capability and their ability to make informed decisions and to manage debt. Problems of access undermine the general principle that consumers should take responsibility for their own decisions. People cannot reasonably exercise that responsibility if they struggle to understand the nature, processes, terms and conditions of products and services.

The financial guidance body standards have to be approved by the FCA, whose remit is different—its remit is to ensure well-functioning competitive markets. If there is a gap in the market, the FCA often does not have the power to fill it, and if there is a market failure it seeks to address it by improving competition, even though in many instances the weakness of the consumer buy-side market forces cannot exert the necessary force to achieve a well-functioning market in parts of the financial services industry. The FCA acknowledged in its Retirement Outcomes Review Interim Report that competition is not working well for consumers who do not seek advice; it has concerns about whether a competitive market can develop in future; and consumers can struggle with the complexity of decisions. This echoes the view of the OFT, in its 2013 report on workplace pensions, that the buy side there was one of the weakest that it had ever encountered.

Competition will not always be an effective way to overcome access problems; the very creation of the financial body is a recognition of that fact. As for the wider market, in its paper on Access to Financial Services in the UK, the FCA observed that,

“left to the market, some consumers will be unable to access the products or services they want or at a price they are willing or able to pay”.

The market can go only so far in addressing the various financial needs of people.

The FCA is an economic regulator with a statutory objective to secure an appropriate degree of protection for consumers of financial services, which is largely focused on the provision of information and disclosure, given the general principle that consumers should take responsibility for their decisions and providers should give consumers a level of care that is appropriate, having regard to the capabilities of the consumer. However, the FCA does not have a specific objective or duty relating to consumers’ access to financial services or financial inclusion. The extent of the FCA toolkit in assisting vulnerable customers can appear uncertain.

The single financial guidance body, by comparison, is created to focus expressly on the needs of the public and the consumer, to improve their financial capability to make informed decisions. It is given the power in Clause 2(3) to do anything that is conducive to the exercise of its function.

So there is clearly a potential for tension between the remit of the FCA, when it considers whether to authorise the guidance body standards, and the aspirations of the guidance body on how to support the public when setting those standards. The objectives of the FCA and the financial guidance body need to be aligned when the standards for the provision of service by the new body are set and approved. That is the purpose of my amendment, which would give the FCA the duty to act in the consumer’s interest when authorising those standards.

The standards are a matter for the new body when it is set up. I do not seek to debate what the standards should be, but as a way of illustrating my point I could speculate on matters where tensions could arise: the qualitative standards for the guidance and how far guiders can go in their role in enhancing individuals’ ability to manage their financial affairs and make informed decisions; the guidance output given to the customer; standards for determining when the provision of guidance and debt advice are considered lacking such that the new body has a locus; the consumer’s journey, including how they get the guidance; the ability of vulnerable customers to access financial guidance; and the extent of active promotion of the financial guidance service by relevant organisations.

The answers to the questions of what the standards should be on these and other matters may be different depending on whether they are looked at wholly through the lens of the individual—the consumer’s interest—or from the perspective of a competitive, well-functioning market. The FCA and the new financial guidance body should look at these standards through the same lens, that of the consumer’s interest. That is what my amendment seeks to do. I beg to move.

[Baroness Kramer]

My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.

I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.

In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.

I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.

[Baroness Altmann]

My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.

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[Baroness Altmann]

My Lords, Amendment 69 seeks to remove Clause 33, which proposes to cancel legislation, passed by Parliament only last year, which ensures that the pensions guidance body can help members of the public who have bought annuities they neither want nor need, perhaps having been forced to in the environment which existed before the pension freedoms were introduced. Section 2 of the Bank of England and Financial Services Act 2016 amends Section 333A of the Financial Services and Markets Act 2000 and extends the definition of pensions guidance, expanding the scope of Pension Wise so that pensioners who are able to sell their annuity income can access free, impartial guidance before they make this irreversible decision. Since May last year, when the Act was passed, the Government have unexpectedly announced that they have changed their mind and no longer intended to allow people—who had been assured that they would be able to sell unwanted annuities from April 2017—to do so. This decision will obviously have disappointed many of those people, but I accept that Ministers believed it was right.

However, there are two important reasons why it is unwise and unnecessary to revoke the legislation that was enacted just last year. If we retain authorisation for Pension Wise or the new single financial guidance body and the FCA to facilitate mandatory guidance for people who may, in future, be allowed to sell their unwanted annuities, we will not need to take up precious primary legislative time to introduce the measure once more—that has already been done. We do not need to explicitly remove this measure; it can either be considered redundant or, in so far as it relates to something that already exists but is little known, it could be of use to many members of the public.

No further regulations have yet been laid in this connection. However, it is important that the single financial guidance body and the FCA should still have a remit to inform or guide the public on selling an unwanted annuity. The particular reason is that it is already possible for people to sell their existing annuities if they are under £10,000. Although the Government changed their mind on anyone’s overall ability to sell an unwanted annuity, there is the ability—which is not widely known—for people to sell one valued at under £10,000. It is surely important for the single financial guidance body or Pension Wise still to be involved in this area and ensure that there is public information and guidance about the risks of such a sale. I beg to move.

[Baroness Kramer]

My Lords, I support the noble Baroness, Lady Altmann, on this. Given that we have loosened up pension provision very widely, and recognised people’s ability to make decisions about their future, I have never understood the Government’s decision on taking away the right to sell an unwanted annuity. There are many reasons why this might be the right and appropriate decision for people in some circumstances. People may be facing large mortgages on which, for historic reasons, they are paying very high interest rates and which could be wiped out, to their overall financial benefit, if they could access their annuity. I could understand it if the Government thought that necessary safeguards should be added. In that case, the answer is to add those safeguards. For example, people could be required to access guidance at the very least, or there could be a much stronger recommendation that they access advice under these circumstances. To choose this vehicle, when this issue has been paid very little attention and focus, seems like an under-the-radar change to something absolutely fundamental. I support the amendment.

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[Baroness Buscombe]

My Lords, first, I thank the noble Lord, Lord McKenzie, for tabling this amendment.

The purpose of Clause 14 is to provide for the single financial guidance body to be dissolved and for its functions, property, rights or liabilities to be transferred to the Secretary of State or another body. It provides for wind-up to be effected through affirmative regulations that must be debated and approved by both Houses of Parliament.

We believe that this provision is a pragmatic measure. It seeks to ensure—should it ever be necessary—that there is a smooth transition of the delivery of government-sponsored debt advice, pensions and money guidance from the single financial guidance body to another body or the Secretary of State. I appreciate that as we are here today debating the establishment of the single financial guidance body, it may be difficult to envisage that at some point in the future we may need to revisit again how we deliver government-sponsored financial guidance. Yet, just as we are now looking to meet the needs of members of the public by bringing together three separate services into this body, we may find there is a case to join up financial guidance with other services in the future. This clause would facilitate a smoother transition should we need to transfer the functions, assets and employees of the body to another.

The ambition behind this clause—should it ever need to be used—is to facilitate a more flexible approach to transition that would deliver the best outcomes for members of the public who need financial guidance. There would be no need to find a primary vehicle to transfer functions and to wind up the body. It would provide the opportunity for Parliament to respond more quickly should it be more appropriate for public financial guidance to be delivered by another body. It will be important, should this clause need to take effect, that the service to consumers is not compromised.

Where a Bill does not provide a fixed lifetime for a public body, Cabinet Office guidance states that departments should consider whether legislation should contain powers to permit winding up at a later date and for finalising and auditing the closing accounts. However, I assure noble Lords that this power does not take away Parliament’s ability to scrutinise or reject any proposals. Regulations would be required to dissolve the body, following the affirmative procedure, giving both Houses the opportunity to debate the proposals and—if they see fit—to reject them.

Before taking the decision to repeal the legislation for the Money Advice Service and Pension Wise and establish the new body, the Government consulted three times over a period of two years. We have chosen not to go down the same route as the Public Bodies Act or the Enterprise Act, which were referred to by noble Lords, but I assure noble Lords that in taking this power to wind up the new body by affirmative regulations we were not suggesting that consultation would not happen or that it would not be necessary. We would, of course, want to involve stakeholders and the public in the decision to dissolve the body in the same way that we have involved them in the development of these provisions.

[Baroness Kramer]

So often in this House I have heard Ministers argue that it is totally inappropriate for Members of this House to support a fatal Motion to a statutory instrument, yet the Minister is here arguing the rights and appropriateness of this House to do just that. I find it somewhat confusing that there is one message on these issues when it appears to suit the Government’s purpose and a completely different message on an occasion such as this.

[Baroness Buscombe]

I reject what the noble Baroness says. For example, with regard to banning cold calling in pension scams we are finding it extraordinarily difficult to find a primary opportunity to introduce that legislation. Here, there is no question of hubris, recklessness or carelessness on the part of government. We are trying to enable a smoother transition if, following consultation some time in the future, it is felt necessary to have a fundamental change to the current body, for whatever reason. At the moment I cannot foresee it, but it could happen.

[Baroness Buscombe]

Far from it; we are not ignoring Parliament—indeed, we have listened to the committee that the noble Lord sits on—but we do not always have to accept what the committee proposes. It is important that we listen, but no—we do not always have to accept what the committee proposes. We propose instead that there should be affirmative regulations, with consultation, that would allow a smooth transition if in future we found ourselves in a situation where it was decided that there should be a fundamental change to the make-up of this body. For example, Pension Wise was set up only a few years ago. However, since then it has been decided that it would be far more effective, efficient and supportive of the consumer if we were to have one single body, following considerable consultation both with the public and with stakeholders to ensure that the Government are reflecting the wish of the consumer.

[Baroness Kramer]

I must question the Minister on this. Is she saying that she wishes that she was in a position to be able to introduce the Bill, in effect, as a regulation rather than as a Bill, and that the Government are frustrated that at present they have three bodies, consider that one body would be better, and that in future they wish such decisions to be made through not primary but secondary legislation?

[Baroness Buscombe]

The noble Lord’s amendment seeks to add safeguards to the winding-up provision by mandating the Secretary of State to undertake procedures set out in Section 11 of the Public Bodies Act before the wind-up can take effect. The power in the clause would mean that the draft regulations would be subject to the affirmative procedure where both Houses of Parliament would have to approve a Motion before the regulations could take effect.

Further, as I have indicated, I can see no reason why—should it ever be necessary—the Government would not consult prior to taking any action to dissolve the body. This would be contrary to the open and transparent culture that we are all committed to. However, as I noted earlier, I have some sympathy with the noble Lord’s intentions on consultation and, in the light of the committee’s comments on this clause, as well as the debate, I will consider further whether there is anything more that we can do to meet any concerns that have been raised. I therefore urge the noble Lord, Lord McKenzie, to withdraw his amendment.