Financial Services and Markets Bill

Baroness Kramer Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Ashcombe (Con)]

My Lords, I remind the House of my interest as an employee of Marsh Ltd, the insurance broker. I offer my support to the amendments in this group, so thoughtfully proposed by my noble friend Lord Holmes of Richmond. My noble friend the Minister has indeed made improvements since Grand Committee, and for that I thank her, but I wonder whether the Government have gone quite far enough. I particularly thank the Minister for the generous amount of time she spent with me the other evening.

My noble friend the Minister’s amendment proposes two reports, 12 months apart, as has been mentioned, but I believe that it is important that reports from the regulators should become an annual occurrence concerning the competitiveness and growth objectives. The financial sector of the United Kingdom is a major driver of revenue for the country and we must ensure consistency over time, not just the immediate future. In turn, this suggests the need for consistent metrics on which to report, allowing for the proper comparisons.

Amendment 19 concerns the principle of proportionality, recognising that not all financial services are the same. Again, I will look at the insurance market in particular, but I suspect there are similarities in other financial lines. I am all for keeping individual retail and small business customers safe when working with insurance companies, but there are significant differences to be found between them, users of the London wholesale insurance market—which is used by knowledgeable buyers, using one of many potential advisers—and captive insurance entities. Smaller customers need a level of protection not required by either of these other two groups.

In the debate on this amendment, I wish to refer particularly to captive insurance companies. Captives are wholly owned subsidiaries set up to provide risk mitigation services—insurance—for their parent company and/or related entities. The parent is inevitably a sophisticated entity, almost certainly hiring advisers. They should require a very different approach from the retail customer.

There currently seems to be a one-size-fits-all approach by the regulators when reviewing insurance companies that does not take into account the nature of the purchaser. This is not only time consuming but costly in comparison with other overseas regimes. Captives provide low risk to the financial system and the buyer of their services requires a significantly different level of regulation from an insurance company trading with individuals. They are fundamentally different.

There is no captive company authorised in the UK and even those of our major companies, including UK public bodies, are located in overseas jurisdictions. The captive insurance business generates in excess of $50 billion annually, and here lies a significant opportunity for growth in the insurance sector which, should the regulator alter its stance and act with proportionality, could, as an example, add significant additional capital into the country.

Amendments 40 and 41 refer to the requirements to publish regulatory performance on authorised firms and new authorisations. The Government certainly recognise in Clause 37 the need to improve the regulatory culture, but we need more teeth in terms of reporting metrics so it becomes standard practice within the regulators. This culture needs to become ingrained.

The metrics being proposed in Amendment 40 are granular concerning timing and would bring some needed haste to the system. In business, time is often of the essence and being held up disproportionately by a UK regulator, as opposed those in other jurisdictions, acts as a deterrent to trade in this country. The metrics being proposed in Amendment 41 link together to give a consistent window into the activities of the regulators. With quarterly reporting it will be possible to gain some comparative statistics that will tell a story.

Lastly, Amendment 92 concerns determination of application. London remains one of the world centres of insurance and we must do all we can to preserve its status, but there are for sure a number of other locations that can attract capital more easily and so challenge it. Unfortunately, regulatory burden is regularly raised as an issue damaging London’s ability to attract additional capital and support the market.

Concerns have been raised about the overall performance of the regulators in terms of timing, with authorisations and approvals taking longer they should. It is recognised that they are falling behind their KPIs. Insurance companies here have experienced delays in case handler assignment, which is the beginning of a domino effect. In addition, concerns have been expressed over some of the questions asked and the appropriateness of the data being requested, leading to additional time and expense. The regulators need to streamline their activities by being relevant.

These amendments refer to a great extent to measures designed to bring some more accountability to the reporting by the regulators. I realise there is a consultation with the financial markets, but I believe that the measures being proposed are the bare minimum that should be required and included in the Bill. These sets of metrics will prevent the regulators deciding which of their own sets of data to publish. Certainly, from an insurance perspective, this will allow life to proceed way more freely. This will ensure transparency from the regulators, which is surely what is being strived for.

[Baroness Kramer (LD)]

My Lords, the amendments in this group fall essentially into two categories. Those that improve communication and representation to statutory panels are small but positive improvements and, although I remain of the view that these panels should be given proper independence, I am glad to see that at least there is some improvement in the regime.

The other amendments I view very differently, and I will pick up the issues raised by the noble Lords, Lord Vaux and Lord Davies of Brixton, that if the reporting requirements included a proper consideration of how the competitiveness and growth objectives as they became operational were also impacting on financial stability, systemic risk and consumer protection, I would find myself very much in favour of them. But actually I regard them as a sort of slightly disguised mechanism to enhance the status of the secondary objectives to something which I think the noble Lord, Lord Eatwell, described on Monday as “secondary plus”, or even “secondary plus plus”. I think that is exactly what these various amendments are intended to do.

This House knows well that I join Sir Paul Tucker, Sir John Vickers, pretty much every former Governor of the Bank of England and many others in regretting the introduction of these objectives because, for exactly the reason that others have said, they will incentivise and drive risky behaviour and we will come to rue that. So this further enhancement of these secondary objectives, very much driven by the industry—we heard from the noble Lord, Lord Ashcombe, how strong the feeling was that we try and get towards making these objectives either primary or close to primary—should be a warning to all of us. So I cannot give these amendments my support, although we are obviously not going to vote on them today. However, it is necessary that the House takes note of some degree of warning.

--- Later in debate ---

[Lord Eatwell (Lab)]

My Lords, I support Amendment 18 in the name of my noble friend Lady Chapman, while also recognising the contribution made in the amendments tabled by the noble Lord, Lord Holmes, and my noble friend Lord Davies.

This is an extremely urgent matter because between 6 million and 7 million of our fellow citizens conduct all their financial affairs in cash. Cash is becoming increasingly unacceptable in a whole series of financial transactions that are conducted by electronic means. This means that cash is ceasing to be money, because money is something which is generally accepted in payment of a debt. If you cannot use cash to buy things, it is no longer money.

It is therefore necessary for both the Bank of England and the Treasury to consider making available to all citizens in this country a means of electronic payment. That is a big challenge, but it is urgent because we are all aware that, over the next decade, virtually everything will be entirely electronic and cash will be unacceptable in most transactions. My noble friend Lady Chapman has hit the nail right on the head by saying that this is a consumer protection objective. That 10% of our fellow citizens needs to be protected by financial inclusion in this way. This is an urgent matter which should not be postponed.

[Baroness Kramer (LD)]

My Lords, in speaking to this group I am channelling my colleague, my noble friend Lady Tyler of Enfield, who is unwell and, to her distress, cannot be here. I will focus on Amendment 18, which she has signed, which would require the FCA to have regard to financial inclusion within the consumer protection objective. My noble friend Lady Tyler chaired the Select Committee on Financial Exclusion in 2017 and this was a cornerstone recommendation. A further Lords review in 2020 came to the same conclusion, as did the Treasury Select Committee in 2022.

My noble friend Lady Tyler made a powerful speech in Committee so I will not repeat the detail, but I will cite the briefing I have received from Fair4All Finance, which finds that more than 17 million people—I previously used the number the noble Lord, Lord Eatwell, used of between 6 million and 7 million people who are under stress for this—in the UK are in financially vulnerable circumstances, with access to credit being increasingly difficult. We will discuss access to cash later.

Endless years of discussion on this topic have failed to significantly move the dial. Basic bank accounts are a little improved but still limited. The hopes for credit unions or fintech solutions have faded. Frankly, nothing will change unless the FCA puts its shoulder to the wheel. Amendment 18, if noble Lords look at it in detail, is not the introduction of a new objective; it is a clarification of the consumer objective through a “have regard” duty. In that way, it is different from the amendment proposed by the noble Lord, Lord Holmes—which I do not object to, but the Government have frequently said that we cannot have additional objectives. This is not an additional objective; it is clarification and emphasis of a key aspect of an objective.

Amendment 18 does not ask the FCA to step into territory which the Government have said is theirs—to close the gap on financial inclusion—but to use powers within its existing scope, which it has shown us it will not do without this emphasis from Parliament. I very much support Amendment 18 and consequently hope that the noble Baroness, Lady Chapman, will ensure that it is tested in the House if the Government do not accept it—although government acceptance is of course the preferred route for us all.