Financial Services Bill

Baroness Liddell of Coatdyke Excerpts

Wednesday 18th July 2012 Lords Chamber

[Lord Flight]

My Lords, everyone will be aware that the F:SMA included a key brief to the FSA to advance financial education. My observation is that pfeg and some of the other charities have done a reasonable job, and that certain banks such as RBS provide reasonable courses, but that still in our schools financial education is extremely mixed. If people have not had financial education at school, it is unrealistic to think that they will get it as adults when they need it. It is an absolute prerequisite of life today that children growing up should become what I will call financially literate. We all have to look after ourselves so much.

This amendment is not exactly what I would wish. I would like financial education to be part of the required curriculum in schools and I have asked a question on that matter in the past. However, I have put forward this probing amendment to see whether the Government have to offer rather more than we have at present in terms of making sure that there is universal financial education in our secondary schools.

[Baroness Liddell of Coatdyke]

My Lords, I have felt passionately about financial education for a long number of years and I support the probing amendment in the name of the noble Lord, Lord Flight. I first became interested in the issue in the late 1990s in the aftermath of the personal pensions mis-selling débâcle when many highly educated and sophisticated people were mis-sold products, largely because of the impenetrable nature of the language in the retail product being presented to them and, harking back to some of the issues raised in the previous debate, the less-than- adequate performance of some independent financial advisers.

Since then my concern has become even greater as we have seen more mis-selling scandals, such as payment protection insurance and inappropriate hedging instruments for small businesses against interest rate movements. Added to that, there is constant pressure on people to get involved in financial instruments at very great cost—everything from store cards through to payday loans. There should be a fundamental understanding on the part of people that when they take out something like a payday loan, it is not a printing error when the rate of interest is in four figures. It is there deliberately as a means of making money.

This issue comes up regularly. FSMA looked at it. Every time there is a debate on financial services, financial literacy is raised. It has become motherhood and apple pie. However, a point will come when we start to take this seriously. I was lucky enough to go to a school in an area that had a mutual bank, the Airdrie Savings Bank, which continues to exist as the last surviving mutual savings bank. It provided certain financial education in schools. I have to say that there was probably a subplot because I still have the little silver bank and I still retain a passbook for the Airdrie Savings Bank. I have no doubt that the Royal Bank of Scotland did exactly the same when it did its work in schools. That is laudable, but at the end of the day the issues are now too great to leave it to charitable and well meaning organisations. There is a need now, for the well-being of the citizenry as well as the well-being of our financial services sector, to put financial literacy firmly on the curriculum, and I would hope not just here in England but in Scotland as well. I support the amendment in the name of the noble Lord, Lord Flight.

[Baroness Turner of Camden]

My Lords, I support what my noble friend has just said. For a number of years, I was chair of the ombudsman council of the PIA, which later merged into the FSA. We used to discuss the reports from the ombudsman and one of the things which bothered us enormously was the level of illiteracy in financial services. We began to worry about this and to wonder what we could do about it. Eventually we set up a sort of panel of interested, qualified people who would talk to schools and so on to ensure that we were doing at least something to try to remedy what we saw was an enormous problem with regard to education. Therefore, I very much support what my noble friend has said. She is absolutely right. We did our best then, but we were taken over and I have no idea whether the FSA continued what we had begun. Certainly we wanted to do that and we did it and it was quite popular for quite a long time. I hope that this amendment is taken seriously by the Government because it is a very important issue.

--- Later in debate ---

[Lord Northbrook]

My Lords, I support the views of the noble Lord, Lord McFall, on split-level trusts. When I was a private client investment manager I came across these extraordinary products, which offered marvellous returns. Income shares were offering 8% and capital shares looked very exciting in the forecasts and prospectuses of what would happen if the market went up 5%, 10% or 20%. But the prospectuses did not say that if the market went down 5% or 10% your shares would be wiped out. It seems to me that, for all those vulnerable people, the FCA has to warn of the downside risks of these vehicles.

[Baroness Liddell of Coatdyke]

My Lords, I support my noble friend Lord McFall in this amendment but I greatly regret the fact that the amendment is necessary. One of the reasons for my regret is the appalling reputation that the financial services industry is earning now as a consequence of the events of the past few years. It is a vital industry for the United Kingdom. It was based initially on the probity of the United Kingdom, which now has to be seriously questioned. It should not be necessary to put into a Bill a duty of care on vulnerable people. It should be a matter of course.

When my noble friend Lady Hayter began this afternoon’s debate, she referred to the issues that have caused such convulsions in the past few months and have led to a serious loss of trust in financial services in general. It would come as no surprise that some particularly vulnerable people, especially the elderly, would nowadays prefer to put their money in a sock under the bed because it is about the only place where it is likely to be safe.

If we are going to restore the integrity of the financial services industry, we as a Parliament must be prepared to show that we are prepared to speak up for the vulnerable. Those of us whose careers have taken us into the other place have had to deal with constituency cases. Quite frankly, a number of times I have felt like sending for the police when I have had constituents in with instruments that they have been sold, which, in many cases, have taken their entire savings away from them. You get not just the City spivs who you see on television programmes but people who live in a community selling wholly unsuitable products.

I suspect that the Minister will say that this legislation is not necessary. I urge him to reconsider that. If we do not put the consumer back again at the heart of the financial services industry, we will lose the competitive advantage that I hope we still retain despite the events of the past few years. We have to overstate to convince people that their interests are at the heart of what this country stands for in terms of financial services regulation.

[Lord Peston]

I support my noble friends, particularly my noble friend Lady Liddell. This takes us back to our earlier remarks today on the need for a professional body for the financial intermediary. I was very disappointed at the way in which the Government did not seem to recognise that as a matter of great concern. As I understand it, doctors have a professional body in the first place and, secondly, they have a code of conduct. Therefore, this sort of thing is not necessary for them because they know that that is how they have to behave. This is true of a number of other professions.

However, one group of people who claim to be professional—the financial intermediaries—have nothing like this at all. I think I am right in saying that there is no professional body whatever. The Government seem perfectly happy with that. They do not seem to see that they should at least encourage them to set up a professional body with a code of conduct, et cetera.

My noble friend Lady Liddell puts her finger on it when she says that we really should not be discussing this issue and that it should be taken for granted that the sort of things referred to by my noble friend Lord McFall could not happen. In a decent society, that should be the case. However, it is not the case. One of the great things about this House, until we are all thrown out, is that your Lordships accept their responsibilities, although our successors may not. It is important to draw attention to what responsibilities should exist in society. I believe that the Government should respond positively to my noble friend’s amendment.

[Lord Sassoon]

My Lords, the debate on this group of amendments has been very interesting. However, it has some characteristics of straying into Second Reading territory because it has gone much wider, albeit over very important areas, into questions of broad mis-selling standards in the industry, which we have discussed already this afternoon. Therefore, I will not go over all the points that have been made but stick to the issues that are the focus of the specific amendment, subject only to one general point about the important questions raised by the noble Lord, Lord McFall of Alcluith, on proposed new Section 1C—on the consumer protection objective, which clearly goes to the heart of this—and his observations and questions on proposed new Section 1C(2)(e), which concerns the general principle of care.

One issue around the drafting that we should bear in mind is that the FCA will be responsible for the protection of retail consumers, but will also have a responsibility for wholesale markets, professional markets and counterparties. The reason behind the drafting of proposed new Section 1C(2)(e) is to make sure that it encompasses both the very strong duty of care that is due to individual consumers, on the one hand, and the fact that between professional counterparties the nature of the duty of care is very different. Indeed, in the terms of this particular principle, there may be no duty of care under this provision if the market is purely professional—it is very different from a consumer product market. It is important to understand that background to the discussion. However, these amendments are very much concerned with protection of the consumer.

[Baroness Liddell of Coatdyke]

There is some confusion in my mind about what the noble Lord is saying. He is talking about the responsibility and the environment of risk in wholesale markets as against retail markets. Even in wholesale markets, there is now a need for a duty of care. The noble Lord was managing director of financial regulation at the Treasury, so he will be aware that from the time of Barings onwards there has been an issue about the duty of care in the wholesale market, too. I am not saying that it should be equated across the board with the duty of care to consumers, but no one who has watched developments over the past few years can take a laissez-faire attitude to what is happening in wholesale markets.

[Lord Sassoon]

I am not suggesting for one moment that there should be a laissez-faire attitude. I am merely pointing out that a very different set of parameters has to be used by the FSA, and will have to be used by the FCA, when dealing with different parts of the financial services market. To those who argued earlier that we should not lose caveat emptor, I point out that in professional-to-professional markets, of course there has to be a high degree of integrity. Recently we saw exactly what appears to have been going on in what are fundamentally professional markets. However, that is very different from the duty of care owed in the case that we are talking about, which is of selling products to vulnerable, disabled consumers. Wholly different considerations apply from those that apply in professional markets. I point that out because the noble Lord, Lord McFall of Alcluith, got into this broader question, and as background to the question that we need to come on to, which is whether it is appropriate to include amendments to highlight important issues about disability, ability and vulnerability that address consumer product markets.