Brexit: Stability of the Union

Earl of Kinnoull Excerpts

Thursday 17th January 2019 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, it is a pleasure to follow the noble Lord, Lord Bruce of Bennachie, who spoke with his customary clarity. I, too, congratulate the noble Lord, Lord Lisvane, on securing this important debate.

I shall make just two points. The first concerns arrangements for intergovernmental relations in our union. Our intergovernmental arrangements are completely out of date. The governing document is a 60-page memorandum of understanding dated October 2013. Our Constitution Committee produced a report, Inter-governmental Relations in the United Kingdom, in March 2015 and made many recommendations. It produced a second report, The Union and Devolution, in May 2016 and made further recommendations. The Government’s response to the first report turned up only in January 2017. In the meantime, nothing has happened to the memorandum of understanding, yet since it was published in October 2013, we have had the Scottish referendum, the Scotland Act 2016, the Wales Act 2017 and now Brexit. The landscape has changed and is changing further. Much more power over many more areas resides with devolved structures, yet the Government have not followed up and have ignored the compelling reports of the Constitution Committee. This failure to engage in a calculated reconstruction of how intergovernmental relations work in the union is a very risky omission and action is needed. Can the Minister tell us what is happening and what the timetable is for having new arrangements?

My second point concerns inter-parliamentary arrangements in our union. The EU Select Committee’s July 2017 report Brexit: Devolution concluded that there was a need for more inter-parliamentary dialogue and co-operation. For Brexit, we recommended regular joint meetings between the relevant committees with responsibility for Brexit-related issues in the Scottish Parliament, the Welsh and Northern Ireland Assemblies, and of course at Westminster. We recommended that these take place for the duration of the Brexit negotiations. We went on to say, at paragraph 298:

“In the longer term, we also see a need for a strengthened forum for interparliamentary dialogue within the post-Brexit United Kingdom”.


The Interparliamentary Forum on Brexit was established as a direct result of these recommendations. The forum brings together the chairs of the committees scrutinising Brexit-related issues in Westminster and the devolved Administrations. In the House of Lords, this includes the EU Select Committee, the Constitution Committee, the Delegated Powers Committee, and the Secondary Legislation Scrutiny Committee. Representatives of the Northern Ireland Assembly of course cannot attend but officials come as observers. The forum has met five times so far and is meeting for a sixth today, here in the House of Lords as we speak. Those at the forum, whatever their views on the union or on Brexit, come together to discuss the Brexit process and the implications for the devolution settlement that flow from it. Participants have been clear that the combination of interesting agendas and the ability to meet and discuss matters with opposite numbers has been most valuable. Today it will discuss the Brexit developments of the past few days and will meet the Minister for the Constitution, Chloe Smith, to discuss intergovernmental relations.

In closing I ask the Minister my second question: does he regard this as a heathy development? Does he think it is a possible template for a necessary formal inter-parliamentary strand of the UK’s devolved structure?

Brexit: European Arrest Warrant (European Union Committee)

Earl of Kinnoull Excerpts

Thursday 8th February 2018 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I apologise that I was not able to put my name down for the debate and am speaking in the gap; I was due to be an expert witness in a case today which has now been delayed at short notice. I declare my interests as a member of both the European Union Select Committee and of the EU Justice Sub-Committee, which is so ably chaired by the noble Baroness who spoke earlier.

I will make just a very few points. First, this is an excellent report. It is jolly hard to write a short essay; it is only 22 pages and it frames everything very well. I congratulate the noble Lord, Lord Jay, and his committee on that. Secondly, I was also on the four-day EU Select Committee trip to Ireland last week, and I sat through the eye-opening session with representatives of the Police Service of Northern Ireland. They made it very clear how important to the overall setup the European arrest warrant is. The key quote was:

“It is a critical part of our toolbox”.


I wrote that down on my papers, and it underlines the importance of achieving a solution here. It is also worth saying that, apart from that, we heard the same point made by politicians and by academics—it was not just a dry comment made by policemen.

My final point is about a comment made to me by an Austrian lawyer in January. He said, knowing what I do on the Select Committee, “I do hope something will be done about the European Union arrest warrant”. I replied, “I’m very surprised that that is the first thing you’ve had to say about Brexit”. I should say that I know this person very well. He said, “It is, because it is something which Austria uses a lot, and it’s a very important feature”. Being me, I started looking up the statistics. I have here the at-a-glance infographic issued by the European Parliament about the arrest warrant. It is very interesting: Austria was in fact the sixth-biggest issuer of arrest warrants in the period covered by the statistics, which was 2005 to 2013. But more interesting is the data on incoming receipts. The country with the largest number was Germany, and the country with the second-largest number was Britain: in that period we received 32,100 arrest warrants. Germany received more than that. The country receiving the next-highest number of incoming arrest warrants—requests to perform an arrest in your country—was France, with only 6,420.

Those statistics show how important it is for European Union countries for their own justice purposes to continue to be able to exercise things for us, just as it is vital for us to be able to do it as well. For that reason, I feel very much that we are pushing at an open door. I always love listening to the noble and learned Lord, Lord Brown of Eaton-under-Heywood, who laid out a very sensible way of trying to handle this issue, which I look forward to reading again. That seems to be where a solution could be found. I hope that the Minister will be able to give us some comfort that we are pushing at the open door.

Risk Transformation Regulations 2017

Earl of Kinnoull Excerpts

Tuesday 7th November 2017 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I hope that the noble Lord, Lord Tunnicliffe, will be in an equally benign mood when he addresses the regulations in my name.

The Risk Transformation Regulations 2017 introduce a bespoke regulatory framework for insurance-linked securities business in the UK, announced at Budget 2015. The regulations comprise three main elements. First, they provide for UK regulators to apply a new authorisation and supervisory regime for insurance-linked securities vehicles in the UK. Secondly, they introduce a new type of company to enable multiple insurance-linked securities deals to be managed in a single company. Finally, they set out the rules for the issuance of insurance-linked securities investments so that the interests of protection buyers and investors are protected.

In an insurance-linked securities transaction, risk is transferred from an insurer or reinsurer to the capital markets. An insurer contracts with an entity specifically established to take on insurance risk. These entities are often known as insurance special purpose vehicles, and are called “transformer vehicles” in the regulations. The insurer transfers a specified risk to the transformer vehicle, paying reinsurance premiums for the risk transferred, and the vehicle then raises collateral to cover that risk by issuing securities to capital market investors. Investors earn income on their securities from the premiums paid by the insurer. Should the insured event take place, the collateral is released to the insurer to compensate them for their loss. If the insured event does not take place, the collateral is returned to investors. Investors are attracted to insurance-linked securities transactions as they offer a return that is uncorrelated to the performance of traditional financial markets.

Insurance-linked securities are now an important and growing part of the global specialist reinsurance market. As of 2017, more than $90 billion-worth of insurance-linked securities have been issued. By enabling insurers to access alternative sources of capital from the capital markets, this business has brought much-needed additional capacity to parts of the reinsurance market. However, despite the importance of London as a global insurance hub, the rapid growth of the insurance-linked securities market has taken place elsewhere.

The March 2015 Budget therefore announced that the Treasury, PRA and FCA would work closely with the London market to develop a more effective framework for insurance-linked securities business. The London market established an industry group, the insurance-linked securities task force, and over the past three years, the Treasury, PRA, FCA and insurance-linked securities task force have worked together to design the fit-for-purpose regulations that are before the House today. At its heart, therefore, the insurance-linked securities project aims to ensure that London and the UK maintain their position as a global insurance hub—and I am sure that noble Lords will agree that any attempt to increase the competitiveness of the UK’s financial services offer is welcome.

The regulations are split into four parts, and they achieve three broad aims. Part 2 implements a new authorisation and supervision regime for insurance-linked securities vehicles, which will be overseen by both the Prudential Regulation Authority and the Financial Conduct Authority. The PRA will be the lead regulator. By providing a robust and efficient framework for the supervision of insurance-linked securities, consistent with requirements set out in EU law, investors and protection buyers that use UK vehicles will benefit from the world-class financial regulation that the UK provides.

Part 3 ensures that only sophisticated or institutional investors can be offered insurance-linked securities in the UK. As I explained a moment ago, in an insurance-linked securities deal, when an insured event occurs, investors are liable to lose some or all of their capital. These are complicated financial instruments, and it would be wrong for public retail investors to be able to purchase these investments. That is why the regulations restrict the types of investors who can purchase insurance-linked securities; these investors will often hold investments in a number of different insurance-linked securities vehicles to both diversify their holdings and minimise the risk of losses.

Part 4 introduces a new form of corporate body called a protected cell company. A protected cell company allows multiple insurance-linked securities deals to be managed in a single company. Each new deal is held in a cell, and the structure of a protected cell company ensures that each deal’s assets and liabilities are ring-fenced from one another. This type of structure is already common in the insurance-linked securities market and allows for a more efficient management of risk than a new vehicle being set up for each individual deal. Protected cell companies will be carefully regulated by the PRA and FCA, with the PRA ensuring that each cell is fully capitalised.

Unlike conventional reinsurance, insurance-linked securities transactions do not pool risk. Indeed, the regulations require risk to be segregated: the transferred risk of one insurance or reinsurance entity cannot be combined with the risk of any other entity. Nor do these transactions lead to the leveraging or undercapitalisation of risk. They are not a way for insurers or reinsurers to avoid their responsibility of carefully ensuring that their risk is suitably capitalised.

In insurance-linked securities transactions, the transformer vehicle takes on a specific risk and must hold collateral that is at least equal to the risk that has been transferred to that vehicle. The Bank of England and Financial Services Act 2016, which amended the Financial Services and Markets Act 2000 to provide the enabling powers for the risk transformation regulations, defines risk transformation as the activity of assuming risk from an entity and fully funding exposure to that risk by issuing investments.

Regulations therefore ensure that each and every insurance-linked securities deal in the UK will hold capital that is at least equal to the risk that it has assumed. There can be no leveraging, pooling or undercapitalisation of risk in these transactions. This will ensure that insurers can rely on the protection they arrange through insurance-linked securities deals. That is an important point to bear in mind, considering the terrible impact of Hurricanes Harvey, Maria and Irma in the US and the Caribbean recently. These hurricanes represent some of the largest loss events that the insurance industry has seen and have tested the insurance-linked securities market’s capacity to respond and pay out on claims.

To summarise, the regulations before the House today are aimed at improving the competitive position of the UK insurance market by giving insurers and reinsurers a fit-for-purpose regulatory regime for insurance-linked securities.

We have heard that insurance-linked securities are a growing market—indeed, 2017 has seen a record issuance of insurance-linked securities, with more than $11 billion issued this year alone. EY has estimated that the market could grow to $224 billion by 2021, and the CEO of Securis, a UK-based insurance-linked securities fund has said that,

“the opportunity set for ILS has never been better”.

It is therefore the right time for the UK to improve its offer in this market. These regulations will be accompanied by new tax regulations that provide for a more competitive and straightforward tax treatment for authorised insurance-linked securities vehicles in the UK. The moves have been welcomed by the industry. I am pleased to say that the London Market Group, which represents London’s insurers and reinsurers, has welcomed this new framework for insurance-linked securities business. I beg to move.

[The Earl of Kinnoull (CB)]

My Lords, I thank the Minister very much for his clear explanation of something which I suspect was not his home ground. It is, however, my home ground in some ways. This is an important statutory instrument, and I declare my interests as set out in the register of the House, in particular those in respect of the non-life insurance industry. I very much welcome the instrument, as it will allow London to take a full part in this extremely interesting new reinsurance market. I say a full part because London has been part of issuing and buying insurance-linked securities for some time, we just have not had the apparatus of protected cell companies, an apparatus which exists conveniently in Guernsey and very conveniently, in a market-leading sense, in Bermuda. I should also say that the first issuer in London of such a thing was my company in 2002, so since then, from a standing start, the market has got to the size that the Minister mentioned.

I very much congratulate the Treasury, which has slaved away for two years with a whole team of people, but I know that the London Market Group has been a particular part of that, and has shown considerable flexibility in changing a mindset, because protected cell companies are a very different structure to those we are used to in this country. It is a big market. I found some notes from when I was sitting on a panel discussing insurance-linked securities in New York in 2011. Then, the worldwide issuance was US$30 billion, and the London Market Group tells me that it is $89 billion—I am pleased to hear that it has grown by $1 billion overnight to $90 billion. The average maturity of the securities is under three years, which means that market issuance is about $30 billion a year, so it is a very big market for those who are going to run PCCs to have a go at.

There are one or two other benefits for London which were not mentioned in the introduction. First, these securities are listed—obviously, we have two very convenient stock exchanges here, which I hope are hungry for business. Secondly, the money in these structures has to be managed, and we have plenty of fund managers who are happy to do that. Also, being here in the London market will be of benefit because one is very close to innovation. There is a lot of innovation in London. The Caribbean wind storms that have gone through recently need a lot of innovation, because those islands do not have the wherewithal to buy traditional reinsurance—it is too expensive—and this may provide a route. I know that people are working on that. I know that a number of people who are working are assuming that we will approve the regulations, and their great hope is that the first transaction will be done before year end.

If I had any concerns, and purely to ask the Minister something—I do not really, because I think that we have taken the best of breed from all the PCC structural developments around the world—it would be that I note that the PRA is left with a couple of powers which if incorrectly exercised could lead it to deal damage to the market. The first is the cost of each cell and the costs of regulation. Of course, when you are deciding on the jurisdiction of your special purpose vehicle, cost is key. I hope that the PRA will think about that. Secondly, paragraph 63 enables the PRA to ask for information about each new cell when it arrives. Obviously, it could ask for a tremendous laundry list of stuff. I hope that it will be proportionate in what it does. Can the Minister confirm that the PRA intends to be pragmatic and proportionate in its approach to this new market in the UK?

Financial Guidance and Claims Bill [HL]

Earl of Kinnoull Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this is not an area that I knew about before the noble Lord, Lord Hunt of Wirral, got to his feet, but he has thoroughly persuaded me and I hope that he has thoroughly persuaded the Government.

[The Earl of Kinnoull (CB)]

My Lords, as usual, the noble Lord, Lord Hunt, is right on the money and I do not disagree with a word that he said. I would add one tiny little thing: the net effect of the MROs and the CHCs is that they add to the cost of motor insurance in this country so that poorer people who struggle to pay their motor insurance will find it further away from them. For that solid reason, I strongly support the noble Lord’s two amendments.

[Viscount Trenchard (Con)]

My Lords, I, too, offer my support to my noble friend Lord Hunt. I agree with his two amendments, which seek to attack one of the major menaces of the spurious claims activity in our society at present. Does my noble friend the Minister think that the FCA is qualified and able to take on all these extra tasks? Will there be a new category of authorised person within the FCA? The skills required to regulate CMCs of various kinds may not be exactly the same as, for example, those required to give financial advice. It is also worth checking that there are not any other areas of spurious activity or the encouragement of spurious claims which are already being practised by unscrupulous people.

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I have just had the opportunity of meeting with ABTA and was told that it recently set up its own free service for resolving holiday sickness claims. I am sad to report that take-up is slow. The revenue available to CMCs by pushing claims in another direction remains all too alluring. My amendment seeks to give the requirement teeth. In my opinion, the only threat effective in compelling compliance by CMCs is to denude them of their right to charge for their services. A robust approach of this kind would naturally require substantial safeguards to be put in place. My amendment aims simply to probe the Government’s intentions on this important point. Does my noble friend the Minister intend to implement this vital recommendation from the Brady report? I would be happy to outline what I believe is the right approach if he were, once again, kindly to agree to meet me and allow me to persuade his officials and him of this. I beg to move.

[The Earl of Kinnoull]

My Lords, again, I support the noble Lord, Lord Hunt of Wirral, and agree with every word he said. I thought it would be helpful to give a few figures for just how raging this fire is.

The first figure comes from CEHAT, the Spanish hotel and apartment trade body, which estimates that over the past three years the Brits have cost its members €100 million in claims. That is just Spain and just members of that trade body. The second is a wonderful statistic, which comes from an unnamed big tour operator in the Guardian on 31 July. It said that from July to August 2016 it took to Europe 750,000 British customers, 800,000 German customers and 375,000 Scandinavian customers. The Scandinavians lodged 39 claims, the Germans lodged 114, and the British lodged around 4,000. One can see just from those facts how much of a fire is burning here and what an important issue the noble Lord, Lord Hunt, has zeroed in on. I can say only that I support his thinking wholeheartedly and hope he is feeling very persuasive, providing he gets to see the Minister and the officials.

[Baroness Altmann]

My Lords, I, too, support my noble friend’s Amendment 70A. He has highlighted a very important issue. It is right that in Clause 17 the Government are looking to cap the charges made by claims management companies, but this should apply to personal injury claims as well as those for financial products and services. The cap on charges is also important because there will be problems in future associated with the increased use of the small claims track when it is extended to cover cases up to £5,000 for personal injury claims.

I was going to quote the same figures as the noble Earl, Lord Kinnoull, but I have also heard from a number of holiday operators and other representatives of the travel industry that resorts are now threatening to sharply increase prices for British holidaymakers or even withdraw all-inclusive packages from the UK market altogether. This situation is damaging the reputation of British holidaymakers and I support my noble friend’s amendment.

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Moved by

[The Earl of Kinnoull]

71: Clause 17, page 15, line 6, at end insert—
“(6A) The FCA must provide reasonable assistance in the interpretation of the rules under this section for those providing claims management services.”

[The Earl of Kinnoull]

My Lords, I declare my interests as set out in the register of the House, particularly those relating to the non-life insurance industry.

At Second Reading I commented on the vital nature of access to justice. It is of central importance that those who are not in a position to get legal or other assistance towards making valid claims can do so via no-win no-fee arrangements with professional firms and at reasonable cost. The very excellent claims management regulation review already referred to by noble Lords, led by Carol Brady, is very firm on this point. I remind the House that her executive summary says:

“The overwhelming majority of stakeholders, including the banking and insurance industries which have been hardest hit by CMC misconduct, argued that there is a legitimate need for CMCs and that the Government should not seek to regulate them out of existence”.


The central role of the FCA is clear. Its regulation must be proportionate and helpful.

Regulators in financial services generally charge the cost of their regulation back to those whom they regulate. So one way of assessing how heavily you are regulated in any jurisdiction, and the burden, is simply to compare the relative costs of the regulation. The British Insurance Brokers’ Association, using London School of Economics numbers, supplied me with some data earlier in the week. It reports that the UK—for insurance broking, which is just one of the very large number of areas that the FCA regulates—is more than twice as expensive as Ireland, Hong Kong and Bermuda, and that that multiple is bigger again for France and Germany.

It is not just the cost or weight but the fact that, in the insurance space at least, you cannot ring up the FCA and get help in interpreting what for our industry is 1,000 pages of regulations on a situation-specific basis. It simply will not answer the question but will refer you to the regulation and say, “Go and get some advice from somebody else if you need it”. That is completely different from how regulators in other jurisdictions around the world operate, as being helpful to those whom they seek to regulate helps a jurisdiction become competitive internationally. This amendment seeks to ensure that there is a cultural change for the FCA where the CMCs are concerned. I fear that an unhelpful regulator would act as a deterrent to the formation of new small CMCs. It is vital that new CMCs can be born to maintain that access to justice that I started with, just as it is vital that a proportionate regulator deals with unsatisfactory CMC behaviour.

I would point out one more thing—that if you get regulation wrong, the FCA can reach through the corporate veil and get at the regulated persons connected with the firm concerned. They can be fined and sanctioned generally in all sorts of ways. If a regulator is unhelpful it is quite a disincentive for individuals who might be thinking of forming a small charitable CMC to help people with certain things, and that disincentive would impede access to justice. I am concerned, accordingly, that good firms providing access to justice might be handicapped or worse, and yet the bad firms may be able to cope with the regulatory burden. In short, this is a vital role for the FCA. This amendment is aimed at ensuring a cultural change in the FCA, and helping CMCs to interpret what I am sure will be complicated and long regulations. I beg to move.

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[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

My Lords, it is my turn to rise to my feet to support my noble friend Lord Young, who has been more than a co-pilot for this part of the Bill. Perhaps I see myself more as flight observer.

The amendment moved by the noble Earl, Lord Kinnoull, aims to ensure that the FCA helps firms to interpret the FCA rules. I absolutely accept and understand his reasons for tabling this amendment in terms of the importance of that interpretation and in order to be helpful. I agree that ensuring that firms understand the FCA’s rules will be vital to the success of this new regulatory framework, and I would like to draw the noble Earl’s attention to the steps the FCA already takes to ensure that firms are well informed of regulatory requirements.

The FCA undertakes a range of communications activities, including monthly e-newsletters summarising all the main changes that have taken place over the previous month and a programme of regional events across the UK for firms to discuss regulatory issues. The FCA holds round tables and other briefings on specific issues with trade associations and firms to help them better understand how new policy may impact their business models. It also maintains a smaller business practitioner panel which represents smaller regulated firms which may not otherwise have a strong voice in policy-making. I have noticed that the noble Earl has, quite rightly, throughout our debates in Committee focused on those smaller businesses that may not have their own strong voice.

On top of this, the FCA is aware of the need to engage with firms about new regulatory provisions. Building on the approach taken in the consumer credit transfer, the FCA will develop a clear communications strategy to engage with firms as a key part of the transition process. The FCA is committed to alerting firms to changes in regulation that affect them and has several well-established channels to support this—for example, in its regulation round-up, which is a monthly e-newsletter sent to more than 50,000 recipients summarising all the main changes that have taken place over the month. That will have links to further information on the FCA website. There is a programme of monthly regional events called “live and local”, across the UK, for firms to discuss the changes, and round tables and other briefings on specific issues. In addition, the FCA sends over 500 speakers each year to talk at industry conferences and events to discuss regulatory issues, and maintains regular relationships with trade associations.

These actions will help to support CMCs through the authorisation process as they work to meet the FCA’s regulatory requirements in the provision of claims management services. The FCA’s strategic objective is to ensure that the relevant markets function well, which will ensure that the market for CMCs’ services functions well. Communication on that basis is vital. The FCA also has a competitive objective, which requires it to have regard to the ease with which new entrants can enter the market. Of course, being able to understand the rules is critical to that.

I hope that the actions that I have set out help to support CMCs through the authorisation process. This short debate with the noble Earl and the noble Lord, Lord Stevenson, will, I hope, give a nudge to the FCA that it is of critical importance that it undertakes this important issue with care to make sure that the process works. For those reasons, I hope the noble Earl will withdraw his amendment.

[The Earl of Kinnoull]

I am very grateful to the Minister for her words, which I shall have to read a bit more carefully in Hansard. I also thank the noble Lord, Lord Stevenson of Balmacara, for his generous words. I am sorry that he has had to listen to me a number of times on the FCA.

The list of things that the FCA is doing, which the Minister told us about, is much more to do with transmitting than receiving. You do not want to turn up to a round table as a business and talk about a new idea; you want to be able to talk about the new idea with your regulator and say, “Will this new idea work? I am thinking of doing it. Does it fall within section 772B on page 956 of your regulations?”. That is the sort of helpful thing that other regulators around the world have been able to do. In trying to fine-tune our honey trap for UK financial services, we are out of step with the rest of the world—and good regulation is one way in which we will attract more businesses in future to come to British markets.

I hear what the Minister says about that issue and wonder whether it might be possible for her to reflect a bit further about what I am saying, which is a different thing from all the various round tables and letters to 50,000 people and so on. It is about having the ability to have a hotline and to ring up and go to see your regulator to chat through a business issue in relation to the interpretation of blooming complicated regulations. It would be a great step change, and it would be a good opportunity to begin here; they will have to design a whole new system for regulating CMCs, and they could begin by building into the design from day one this element of something that would be very helpful to the small, good firms which I hope will grow up in the CMC space. I think the Minister is saying that she would agree to have a chat in the period before Report. If there were no progress, I might want to bring it back at Report. But on that basis, I am happy to withdraw the amendment.

Amendment 71 withdrawn.

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[Baroness Altmann]

My Lords, I support this amendment and speak to my Amendment 73 on the same topic, which seeks to achieve the same aim as Amendment 72. The scale of nuisance calls is of great concern, as has been expressed in previous debates on this Bill from noble Lords on all sides of the House. The Association of Personal Injury Lawyers states that an estimated 51 million cold calls or texts are received each year from regulated claims management companies for personal injury claims. Although such nuisance calls are supposed to be prevented by existing regulations, current measures are clearly ineffective.

Reforms of claims management companies are clearly urgently needed. I congratulate my noble friend on introducing the Bill. Carol Brady’s excellent independent review of the regulation of claims management firms recommended moving responsibility to the FCA, which is what the Bill does, and I wholly support that. However, it is also important to protect the public from nuisance calls and texts, which the claims management companies often plague people with; to reduce the level of speculative and even fraudulent claims, which cause added costs for companies and end up costing other consumers extra money; and to stop customers being fooled into paying up-front fees to unscrupulous claims management companies, which they then never recover after they discover that they did not have a valid claim in the first place.

FCA regulation of CMCs will help toughen the oversight of nuisance calls, but that move alone is not sufficient to properly protect consumers. The FCA has powers of enforcement that are better than the current regime; it can strip those found to be flouting the rules of their ability to operate and can hold directors personally liable. But a ban on unsolicited approaches would add much more protection. It would be clear to consumers that they should not engage with firms which contact them and encourage them to make spurious claims. Currently, the claims management companies act with impunity to entice people to make easy money. But of course this has the effect of imposing higher costs on the wider public, as we have already heard this afternoon, because firms will charge more to cover the risks of such claims. We have seen this clearly with whiplash injuries and we are seeing this with holiday sickness claims. Indeed, the Law Society has also written to me to support the banning of cold calls. ABTA cites the problems that we have already discussed about the dramatic rise in speculative and fraudulent claims. This will cause detriment to the wider public if we do not make sure that we take the opportunity in the Bill to retain effective measures to address the issue.

The Minister has already said how much she wishes that she could ban cold calling for pension companies, and there was support across the whole House for that measure, but it is questionable; we hope that we might be able to find a way to get that into the Bill. However, cold calling for claims management companies clearly is in scope of the Bill. When defining “claims culture” in a Parliamentary Answer on 19 April 2016, my honourable friend in another place, Dominic Raab, said:

“The Autumn Statement referred to the cost to society of the substantial industry that encourages claims through cold calling and other social nuisances and which increases premiums for consumers”.


Therefore the Government have clearly equated claims culture with cold calling, and the logical and fair action would surely be to ban cold calling for personal injury claims rather than restrict the rights of people who have been injured through no fault of their own, which the Government are expected to do in the forthcoming civil liability Bill. These proposals perhaps aim slightly at the wrong target, but the Bill gives the Government the opportunity to aim at the right target and ban cold calling, which they state encourages a claims culture.

As the Government recognise that there is a problem, and there is both industry and public support, the Bill could be amended to include this ban on cold calling. Whether it is through Amendment 72, in the name of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, or Amendment 73, in my own name and that of the noble Earl, Lord Kinnoull, I hope that we might take this opportunity to protect the public in this manner by banning cold calling.

[The Earl of Kinnoull]

My Lords, I strongly support the noble Baroness, Lady Altmann, and I thank her for allowing me to add my name to her amendment. Obviously, I also strongly support the thinking behind the amendment in the names of the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, and I just wish to add one or two points.

There was a very helpful Which? report in November 2016 detailing the full horror of nuisance calls in the UK. For the report, telephone calls in 18 cities were sampled. In 17 of the cities—the survey took place over a long period—more than a third of all the private phone calls were nuisance calls, and in Glasgow, which topped this terrible table of nonsense, more than half of the calls in the sample were nuisance calls. The top type of nuisance call was about PPI, which of course is firmly a CMC nuisance. In commenting on the November 2016 report, Keith Brown MSP, the relevant Scottish Minister, was quoted as saying:

“These calls are a serious problem that can cause both emotional and financial harm, particularly to some of our most vulnerable citizens”.


A very horrible statistic in the report was that four in 10 people in Scotland who had received these calls felt intimidated by them. It is barbaric behaviour.

I was delighted to read in their manifesto what the Conservatives are going to do about cold calling on pensions. Like, I think, every other noble Lord in the House, I feel that we must use this opportunity to extend the ban to this area as well. I suppose that it is the businessman in me who does a quick upside/downside analysis. My upside analysis has a reduction of emotional and financial harm and intimidation, and my downside analysis has nothing. Perhaps the Minister could tell me whether she agrees with that analysis. I hope that she feels as I do—that it is a social necessity that we carry through one or other of these amendments and put it in the Bill.

[Viscount Trenchard]

My Lords, I too express support for both the amendment proposed by the noble Lord, Lord Sharkey, and that proposed by my noble friend Lady Altmann, supported by the noble Earl, Lord Kinnoull. I ask my noble friend the Minister to consider both amendments sympathetically. I expect that she is likely to say that she agrees with the amendments in principle but that this is not the time or the place for such a measure. However, surely it would be popular with the public to introduce a complete ban on unsolicited cold calling across a broad range of activities.

The Law Society and the ABI have both called for a crack-down on nuisance calling of all kinds. ABTA has also suggested that the Bill provides an opportunity to introduce an outright ban. As noble Lords are aware, solicitors, who are more tightly regulated than CMCs, are already banned from making unsolicited calls.

What I find particularly annoying is that if you answer your phone when you are overseas, you have to pay. I get so angry when this happens to me that I am sometimes more likely to start a conversation with the cold caller than I am to just hang up, which would obviously be the sensible thing to do. I say, “Do you know it’s three in the morning and I’m in Japan, and this is costing me money?”, but I find that the cold callers are not a very nice type of person in general and they are not sympathetic. My noble friend Lady Altmann mentioned that every year there are 51 million cold calls in respect of personal injury claims. In that case I am getting many more than my share, because I get about one a week.

It is a difficult area because, as noble Lords have pointed out in earlier debates, the FCA is not necessarily the most sympathetic regulator, and I agree with the noble Earl that we should look more closely at equivalent regulators in other countries. I had the privilege of serving under the noble Lord, Lord Burns, on the Joint Committee on Financial Services and Markets in 1999, which set up the FSA. We talked at great length about getting the balance right between protecting the industry and protecting the interests of the consumer. We did not necessarily get it right in the sense that the culture needs to evolve in a direction which is more sympathetic to the consumer.

--- Later in debate ---

Moved by

[The Earl of Kinnoull]

74: Clause 18, page 15, line 27, at end insert “and Scotland.”

[The Earl of Kinnoull]

My Lords, this is not really the final furlong but the final approach, I suppose, if we are to keep the metaphor going. I shall also speak to Amendment 76, which is connected. I begin by thanking the Minister, who has been very helpful to me on this. He was even sending me lucid emails at 7.21 am today. I also thank the Association of British Insurers, which has been extremely helpful in the preparation of my remarks.

These probing amendments address two issues that I perceive. First, Scotland has a separate legal system and major differences concerning no-win no-fee. There are major differences, too, in its regulation of CMCs. In Scotland, CMC activities are not regulated and referral fees are allowed—unlike in England, where CMCs are regulated and the paying of referral fees is an offence. How wrong it would then be if a substandard CMC could camp in Dumfries and aim at English consumers, free from regulatory control. I am certain that any form of cross-border arbitrage would be wholly against the admirable intentions of the Bill.

It appears, however, that this is exactly what is happening. DWF, the respected Manchester-head- quartered law practice, which has offices in Scotland and internationally, commented in February that,

“in recent years increased levels of fraud have been detected in Scotland, along with a significant rise in injury claims. In part, this is thought to be due to the effect of LASPO in England pushing claims management companies into Scotland, where their activities are not regulated and referral fees are allowed”.

There must be a general principle that businesses must not be allowed to arbitrage the UK’s regulatory and legal environments to the detriment of consumers. The FCA is, rightly, a UK-wide regulator in, for instance, non-life insurance. I feel strongly that it should be so here. Can the Minister comment on the position of the territorial scope of the Bill and whether this legal and regulatory arbitrage is acceptable to the Government?

My second point concerns CMCs in Scotland generally. I have already referred to the November 2016 Which? report and some of the rather horrifying position that it laid out. However, I note that three of the top five cities for nuisance calls were Scottish, and that in Scotland PPI calls were the number one type of nuisance call. In Glasgow, as I said, over half of the one million calls sampled were nuisance calls, according to the report.

This very week, Citizens Advice Scotland is running a campaign called Calling Time on Nuisance Calls to highlight the problem. I wish it well. It aims to reduce this pernicious problem, causing as it does, according to Keith Brown MSP, the responsible Minister, “emotional and financial harm” to Scottish citizens. This month the Scottish Government have put out a paper, A Response to Scotland’s Nuisance Calls Commission: An Action Plan. Keith Brown is behind the paper. On page 5, when referring to the statistics from which I have been quoting, he writes:

“Faced with these statistics, we must take action now that will make a difference, even as we press the UK Government to do more”.


What is that “more” where CMCs are concerned? Is the Bill not an ideal opportunity to deal with that and the regulatory and legal arbitrage problem to which I referred earlier? I strongly urge the UK and Scottish Governments to bring CMCs in Scotland under the experienced wing of the FCA. I beg to move.

--- Later in debate ---

[Lord Young of Cookham]

My Lords, Amendments 74 and 76, tabled by the noble Earl, Lord Kinnoull, seek to extend Part 2 to Scotland. I am grateful to him for the way he set out the case for this extension. The Government carefully considered the scope of claims management regulation during the development of this policy. The current framework for claims management regulation, set out in the Compensation Act 2006, limits the extent of claims management regulation to England and Wales only and this will remain the case as we transfer regulation to the FCA. The matter is currently reserved, so we cannot simply make regulations to devolve the matter to the Scottish Government.

In reaching this decision, the Government had a dialogue with the Scottish Government to establish their view. Their view, as outlined in correspondence from the Scottish Business Minister, was that there is limited evidence of malpractice by CMCs in Scotland, and they concluded that extending the scope of claims management regulation would be unnecessary and disproportionate. That view is clearly challenged, and is about to be challenged again.

[The Earl of Kinnoull]

The Scottish Government have come out with a long paper—it is a dozen pages or so—in which they publicly state completely the opposite. We have been citing these terrific statistics from Which?. I do not know at what point in time their views are dated, but events have moved on and the old views are clearly wanting.

[Lord Young of Cookham]

I am very grateful to the noble Earl, who has been very influential, as I will explain in a moment, in persuading the Government to think about this again. I will not quote it again, but what I just quoted was the view at the time we consulted. The Scottish Government concluded that regulation would be unnecessary and disproportionate. It may well be that, from the evidence the noble Earl referred to, since then they have changed their view.

As for regulatory arbitrage, it should not mean that a firm can evade regulation by moving across the border. The Bill gives the Treasury a power to define when a person should be treated as carrying on claims management activity in England and Wales, which gives government the flexibility to adapt the definition should the market change. When exercising this power, the Government intend to capture CMCs approaching consumers in England and Wales, and CMCs taking forward their claims should be subject to FCA regulation. This mirrors the current regulatory framework, in which the requirement to be authorised is not dependent on where the CMC is located but based on where it carries out the regulated service.

With regard to nuisance calls in Scotland, the Government continue to build on a package of measures to tackle this problem across the UK. We have already delivered a number of actions, including: a measure in the Digital Economy Act 2017 making it a requirement for the Information Commissioner to issue a statutory code of practice on direct marketing; requiring all direct marketing callers to provide caller line identification; and increasing the maximum level of monetary penalty the ICO can issue to £500,000 for serious breaches of the regulations. In the light of what the noble Earl has said, we will re-engage with the Scottish Government on this issue and keep our position on claims management regulation under review.

Amendment 75, tabled by the noble Lords, Lord McKenzie and Lord Stevenson, seeks to establish a timescale within which the Government will commence the legislation relating to the single financial guidance body. I am not sure the amendment would do what the noble Lord wants: these regulations would have to be made within 18 months of Royal Assent, but the regulations could then provide for these sections to come into effect after 18 months have passed. I am sure that was not the intention, but that is the reading of the amendment as I have interpreted it. As indicated in our response to the consultation on the single financial guidance body, the new body will come into existence no earlier than autumn 2018. We want to ensure that we provide for the best possible transition from the existing services to the new body. We are conscious, though, that the process has already created some uncertainty for existing services and for consumers. For that reason, as well as those given by the noble Lord, we would like to move as quickly as is practicable.

We also want to provide time for the chair and chief executive to assess and contribute to the key set-up arrangements. In line with Managing Public Money principles, the Bill must have passed Second Reading in the House of Commons before a recruitment exercise for the chair and chief executive can commence. We anticipate starting this recruitment exercise as soon as possible after that point. We are working with existing services and other key stakeholders to ensure that we remain on track to establish the new body. Although I sympathise with what the noble Lord is seeking to achieve with this amendment, I assure him we have every intention of establishing the new body as soon as is practically possible and ensuring that the body is able to deliver an improved, joined-up service to meet the needs of the public.

Against the background of the undertaking I have given to the noble Earl, and the assurances I have just given to the noble Lord, Lord Stevenson, I hope this amendment might be withdrawn and the others not pressed.

[The Earl of Kinnoull]

I am very grateful to the Minister for his typically courteous response and the courteous way in which he dealt with my rather not-so-courteous interruption, for which I apologise. What he said about my point on arbitrage sounded very good, although I want to read it again in Hansard, as did the undertaking. I would like to see how things progress from here, to see if there is anything left on these issues to discuss on Report. But it sounds as if progress is being made, for which I thank the Government very much indeed. On that basis, I beg leave to withdraw the amendment.

Amendment 74 withdrawn.

Financial Guidance and Claims Bill [HL]

Earl of Kinnoull Excerpts

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

[Baroness Altmann]

My Lords, I will also speak to Amendment 42E. Effectively, these amendments would ensure that anyone who received an unsolicited approach about their pension would have to go to Pension Wise before they were permitted to do anything or receive the guidance if they did not have an independent financial adviser.

I admit that this amendment is the result of the fact that we were unable to find a way to ban the cold calling that leads to the scams that we are trying to deal with here in the Bill. I also thank the Minister for the recent statement from the department that it has decided that it will ban cold calling for pensions. However, I hope your Lordships will agree that this seems like an ideal legislative vehicle in which to carry out the Government’s wish to ban cold calling and to protect the public effectively. Banning cold calling effectively protects members of the public from scams. Scams that result in people losing much or all of their pension are almost always the result of an unsolicited approach. So this is a roundabout way of trying to achieve something which is clearly in the public interest and which the Government themselves would like to do.

We could require people who had an unsolicited approach either to have a financial adviser to ensure that what they were doing was right or to have a conversation with our guidance service to assess what they were about to do. Presumably, the first question from whoever was speaking to them from the guidance service would be, “Is this the result of an unsolicited approach—a cold call or an email from someone you did not know, or a text or whatever?”. At that point, it would be possible to protect the person before they could sign away their pension in a scam. There is a classic trick of rushing people into parting with their money or signing on the dotted line by saying that it is a limited offer which is available only today or is about to run out. That would not be able to happen if somebody had had to make an appointment with Pension Wise or the guidance body and had discussed it first.

I hope that we can discuss this issue. If this is not the best way of achieving the aim, I hope that the Government will consider introducing into this Bill another method of achieving it so that we can start the ball rolling on protecting the public and getting rid of cold calls. We have done that for mortgages. I know that the Minister has said that it is a complex matter, but I would be very grateful if she could explain the complexity which means that we should pass up this opportunity to do something that the Government themselves want to do when no other legislative vehicle in which to do so is in sight for the next couple of years. I beg to move.

[The Earl of Kinnoull (CB)]

My Lords, I had not intended to say very much but, after discussing this issue with the noble Baroness, Lady Altmann, earlier, I thought that I should say a few words now. As I said at Second Reading, my interest is very much in Part 2 of the Bill—an area that is home territory for me and on which I have something to say. My drafting eye was caught by Amendment 42E. I feel that having a decent definition of “unsolicited communication” would be very valuable in legislative terms as we go through this process. It applies not just in this area, which has been very eloquently explained by the noble Baroness; it applies also in Part 2 and elsewhere. Therefore, I feel that it is worth debating it now.

As I see the definition, even simple things such as a letter or some sort of Facebook communication would not fall within it, so I simply say that it is worth having a good definition so that we know what a cold call is. It is not just a telephone call. I receive an awful lot of Part 2-type telephone calls at home, admittedly in Scotland, every single lunchtime, but there are other methods of cold calling. Certainly I have been shown very worrying letters by local vulnerable people in Scotland suggesting that they do something urgently about their pensions and so on.

Therefore, I think that we need that definition, and I strongly support the thinking behind these two amendments. I would be very happy to join a meeting to talk about how one might tweak definitions and whether a definition is needed here or elsewhere in the Bill, but I think that it would be very helpful to have a clear idea of what a cold call is.