Financial Services and Markets Bill (Second sitting)

Emma Hardy Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[The Chair]

Order. I am afraid that brings us to the end of the time allocated for the Committee to ask questions of this witness. On behalf of the Committee, I thank our witness.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

Q Could the deputy governor write to the Committee with an answer to that question?

Sir Jon Cunliffe: I would be very happy to write something on—

[Emma Hardy]

Crypto.

Sir Jon Cunliffe: We will bring out a regulatory framework for stablecoin, but I am very happy to write on how we see it, if that helps.

[The Chair]

Thank you, Sir Jon.

Examination of Witness

Paddy Greene gave evidence.

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[Siobhain McDonagh (Mitcham and Morden) (Lab)]

Q I thank Which? for all the work it has done about the imperative of free access to cash. I do not think any of us are surprised that the Post Office announced that it had £3.45 billion taken out in cash in August, which is the highest figure since its records began. Does the Bill ensure that people will have free access to cash, or is there a need for an amendment to be very specific about that?

Paddy Greene: I think we need to be specific about the need for consumers to have free access to cash. I have concerns that the Bill could be interpreted in a way that undermines those objectives. We absolutely welcome the provision of cash legislation and I am very happy to see it here, but this is our opportunity to get it right. Consumers need confidence that they will have free access.

[Emma Hardy]

Q I will be super quick. Do you think we need to see regulation of buy now, pay later firms?

Paddy Greene: Absolutely. We need to see it and we need to see it very quickly. We are in the situation where a lot of people use such buy now, pay later. I acknowledge that a lot of people use it safely, but a growing number of people are struggling with repayments. It gets to the point where people presume that it is regulated. It is an unfortunate reality that lots of consumers do not really differentiate between types of financial products when it comes to the payments and credits that they use, but we need to have buy now, pay later regulated and we need to have it regulated very quickly.

[Emma Hardy]

Thank you.

[Tulip Siddiq]

Q The Bill provides reimbursement only for fraud victims who send money using the faster payments system. Do you think other payment systems should be included? Will you tell us a bit about that?

Paddy Greene: Yes. Similar to the comments that were made before, it is right to start with faster payments. We need to move to a model where we are absolutely confident—I heard the tail end of the previous evidence about different payment mechanisms and those that are emerging. We must have consumer protection baked in. We want consumers to have confidence and we know people are going to use such systems but, as we have said previously, they do not necessarily understand what is backed and the type of payment mechanism that is used.

In terms of what we want to see next, we are delighted with faster payments, but £79 million is already lost on CHAPS, on-us items and international payments. First, we need to make sure that the PSR and the Bank are talking properly about CHAPS, because when we are talking about CHAPS, we are talking about house purchases. For the people who are scammed during such a payment, there is a huge detriment, not financially but emotionally, and we know that fraudsters will adapt.

Our next steps, after we have got faster payments, are CHAPS and on-us, and we need to look at international payments. We need to make sure the regulator is looking at all the other designated payments and those that will come down the line, because we are seeing innovation, in order to make sure that the appropriate consumer protections are built in from the very start.

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[Craig Tracey]

Q I have one quick follow-up. With that in mind, is the FCA the right one to have a remit for financial inclusion? If not, who should?

Martin Coppack: Importantly, when asking the FCA to do social policy, it would not allow it. What it is about is closing that complete spiral. Seventy-odd organisations have signed our call, and some firms. We are trying to close that loop so that we can have conversations about the most difficult things affecting the poorest of your constituents. That is all we are trying to do, and what I would urge you to support.

[Emma Hardy]

Q Thank you both for your work in this area. Martin, you might have heard Sheldon from the FCA earlier trying to reassure us all that we do not need to have regard to financial inclusion, and that it is all fine and there is nothing to see here. Will you elaborate? If the FCA had a “have regard” to financial inclusion, what difference would it make to the lives of people facing financial exclusion? Can you provide any examples of the interventions that the FCA could make if it had that “have regard”? What difference would it make? The FCA is saying, “It’s all fine, and we do something anyway”, and it pointed to the consumer markets—that was its answer.

Martin Coppack: Gosh, there was a bit there. Remind me if I do not get everything. First, the FCA will talk about the consumer duty and its vulnerability guidance. Neither of those touches anything to do with income. Vulnerability touches lots of things, like losing a partner or disabilities, which is great, but looking at income does not touch any of it. I have had numerous conversations with the FCA, and it is not supportive of this, but it recognises the issue, although it has not come up with an alternative.

On examples of how this would have worked well in the past—actually, I have a current one. How long has Natalie been trying to get some action here, on access to cash, before the infrastructure absolutely wilts away? It is a race against time. I was in the FCA 10 years ago, or whatever, and I saw all the letters going between Departments and the FCA to say, “Let’s not touch that. It is not in our remit.” That is a live one right now.

Past examples: the loyalty premium insurance everyone knew was an issue. It took Citizens Advice getting all its resources together to do a super-complaint to get any further on the loyalty premium in insurance. Access to basic bank accounts—Sian Williams at Toynbee Hall was going at this for years before we got any further. Those are the types of intervention that would be allowed.

On the difference at the ground level, I could go through a few more parliamentary constituencies. For example, tackling the insurance poverty premium would make a huge difference of £500 million to your constituents, James; it would make a difference of one million three hundred for your constituents, Emma. I could go on.

One other quick thing is that, when we talk to people in the community, they do not have a clue why the market is why it is. People like me can say, “Cost to serve—it’s a rational way the market is working.” But if you ring up and say, “I want car insurance,” they say, “We don’t serve you—it’s your postcode.” I have had people say, “If I cross the road in Glasgow, my life expectancy goes down by this much. The same applies in terms of my insurance going up.” People say they are lying on their insurance forms by putting different postcodes on, because they need their car because they are disabled. This is how consumers react to a system that does not work for them.

[Emma Hardy]

Q You mentioned before the letter and the number of people supporting the “have regard” to financial inclusion. I wonder whether it is worth sharing with colleagues who the people who support the “have regard” to financial inclusion are, and whether they elaborate on the reasons why they have supported that. Even though you are a wonderful spokesman, it is not just you supporting it, is it?

Martin Coppack: No. We have Martin Lewis on board, for example. That might surprise some people. We have Andy Briggs, chief executive of Phoenix Group. We have Lord Holmes of Richmond, from the House of Lords. We have the Legal & General Group chief executive. That is as well as other organisations that you might expect, such as Citizens Advice. There are about 70. This is not a niche area. People see it and see the need for it. It is not just Fair by Design.

[Martin Docherty-Hughes]

Q I think both of you will agree with what I am about to ask you. Would you agree that those most in favour of a cashless society are those with the most money in their bank?

Natalie Ceeney: Yes.

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[Gareth Davies]

Q Okay. Maybe write to me with your workings and we will go from there. If you rattle off data in an evidence session such as this, it is important for you to know how that data was calculated.

[Emma Hardy]

How they have worked it out is on the website.

Martin Coppack: It is published by the Bristol University Personal Finance Research Centre.

[Gareth Davies]

That still does not answer my question. If you are going to come to a Committee such as this, please provide your data.

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[The Chair]

Order. We resume our session. I think a question was put to you. Do you want it repeated?

Mike Haley: I do not need the question repeated.

On the question of what has created the significant increase in frauds—particularly authorised push payment frauds, known as scams—I was saying that there are three interconnected issues. First, there is the reach of social media. Secondly, organised crime has turned its attention to fraud. Thirdly, the faster payments regime has enabled fraudsters to quickly dissipate the scam funds.

One of the things we have seen with the dissipation of scam funds is that they often go into cryptoassets and crypto exchanges. That is why, as part of the Bill, we welcome extending the regulatory perimeter to cryptoassets—digital settlement assets—so long as, in that authorisation process, there is a risk assessment around economic crime. Authorised crypto firms should meet the same standards as banks, in terms of know your customer—customer due diligence—and should have in place the anti-money laundering, counter-terrorist financing and fraud operational standards that we expect from the other financial service players so that it is a level playing field.

[Emma Hardy]

Q Thank you for your answer. Fraud is a huge issue, and I am sure we all have individual stories from constituents who have been impacted by it. I just wonder what else could have been done in the Bill to tackle fraud. Specifically, should we have legislation on a single dedicated national strategy to tackle fraud, or should we have provisions to support investigators in the sector to prevent fraud and track stolen money? I asked a previous witness about putting in place data-sharing agreements that extend beyond just the banks to include fintech, electric money institutions, cryptoasset firms and payment system operators. What more can be done? Would you support what one of the witnesses—I forget who it was—said about data sharing?

Mike Haley: I will take those in reverse order. Provisions that facilitate greater data and intelligence sharing, particularly on suspicions of fraud and financial crime, would have the biggest impact in helping to prevent this type of crime. It is a crime that is at scale and at speed in the online environment. To be able to share the mobile numbers that are being used, the devices and the IP addresses at speed across the whole of the environment—payment providers, fintechs and telcos—would be enormously powerful. This is a volume crime, and we need to have prevention at the core of any national strategy. That would have a massive positive impact.

I would like to see it go further. I would like it to be mandatory, because why should an organisation sit on knowledge about fraud or financial crime, and not share that with others to protect the whole of the financial services industry? There should certainly be strong leadership saying it should be done. For those who do not, I would like it to be mandatory, but it should certainly be facilitated. There should be something in the Bill that facilitates that sharing.

[Emma Hardy]

Q Something on the face of the Bill that says that they have to do this.

Mike Haley: And that they can. A lot of the time, organisations feel, rightly or wrongly, that they cannot share this type of data and intelligence. They might quote the General Data Protection Regulation, but in my view the GDPR says that it is in the legitimate interests of businesses to share data to protect their services and consumers. There is a lack of confidence in doing that, so we should have something very explicit that says not only that it is allowable but that it is expected, because we are all part of the same ecosystem, in which people are being scammed and organisations are losing literally billions of pounds.

Absolutely, there should be a national strategy, and prevention should be at its core. We are looking forward to the Home Office publishing a national strategy; it has been much delayed, and it is very much anticipated. From what I have seen, I would like it to be more ambitious, and to cover the public and private sectors, as well as law enforcement. Fraudsters do not decide one day, “We only go after bounce back loans because that is a public sector fraud.” They will go after a loan from the Nat West bank, or a mortgage. A lot of data is not being shared between the public and private sectors and law enforcement. That would be a powerful set of data and intelligence, which would make us more effective as a country in defeating fraud.

[Emma Hardy]

Q Fantastic. Are there any other things that you think could be done with the Bill to try and tackle fraud that we have not covered so far?

Mike Haley: If we are looking at some of the regulators’ new rule-making powers, and also with the panels that have been suggested, with any rule or policy change they should be thinking about what the economic crime impact will be.

[Emma Hardy]

Q Like an economic crime assessment?

Mike Haley: Yes, because there can be unintended consequences some way down the line that were not thought of at the start. Faster payments are a really good example; they put the UK in a competitive position and most people would support faster payments. However, we find that they have been exploited. There could have been some thought about, for example, in what circumstances we slow that journey down to prevent fraud. With any new rule changes we should ask what the impact could be, and what unintended consequences there could be—does it open a gateway for fraudsters or criminals to exploit? I think that would strengthen the Bill and also give some real teeth to a regulator—to be held to account about whether they thought about it at the outset.

[Emma Hardy]

That is really helpful, thank you.

[Andrew Griffith]

Q Do you think this is a good example of an area where it is important that the Government have an intervention power? We have seen some patterns of behaviour emerge very rapidly and cause significant public policy concern.

Mike Haley: Yes, I think we have seen in the past that regulators have not moved quick enough when there has been widespread harm. We might look at payment protection insurance, for example, where consumers brought plenty of reports into MPs’ and Government in-trays, and yet the regulator was rather slow in intervening in a market—a market that had been abused. I think that an intervention power could be very powerful.

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[Stephen Hammond]

Q I think it has been explicit all the way through that there is a hierarchy of objectives. Would you agree that the Bill should ensure that there is a clear set of metrics and there is transparency for showing how that objective is being met or is not being met?

Martin Taylor: If that can be done, I would certainly welcome it. One of the difficulties that the Financial Policy Committee has always had is that if your job is maintaining financial stability, it is not always very easy to see if you are succeeding. One can see that recently, for example, the Monetary Policy Committee has not been meeting its inflation objective. That is an objective in hard numbers, and for the FPC and for other regulatory bodies it is harder.

[Emma Hardy]

Q Thank you, Martin, for your candour. What risk could the intervention pose to financial stability and to the UK’s reputation and global competitiveness if left as it is?

Martin Taylor: I do not want to exaggerate. I said this was a corruption of the system and corruptions work slowly, so it does not make us into Argentina or Turkey overnight but that is the direction of travel, if I can put it that way. Independent regulation is not an aesthetic choice; it is a practical one. I think the transparency of the regulatory process in London—the need for the regulators to explain themselves and especially the scrutiny by Parliament—is one of the cornerstones, along with the legal system and various other things we are familiar with, of London’s attraction as a financial centre. The UK’s reputation needs a bit of tender loving care at the moment, I would say, and bringing in unnecessary measures that risk damaging it seems to me unintelligible.

[Emma Hardy]

Q Would it be your recommendation to remove that from the Bill?

Martin Taylor: Completely—just knock it out. I see no advantage in its existence.

[Emma Hardy]

Q And do you think there is a risk that if the invention powers are left, they could be perceived by markets as a threat to the independence of the Bank of England or the PRA? We have seen such recent turmoil in the markets over concerns. Do you think it could have a similar impact?

Martin Taylor: One of the problems that led to the recent turmoil—a very English description of what has just happened—was that the Prime Minister and the former Chancellor chose not to subject the mini-Budget to the scrutiny of the Office for Budget Responsibility. Had they done so, the OBR might of course have objected to various parts of it, which is perhaps why they did not do so.

However, international investors looking at London will have noted this and it has a bad smell, if I can put it that way. I am not worried about the bond traders who price the market day by day. The volatility was extreme and very dangerous. It has been settled by the Bank for the moment, I hope. I am much more worried about the people running really big blocks of money—big foreign sovereign wealth funds or big institutional investors—who look at London and say, “Is it worth having an allocation to gilt-edged stock? Do we want to be exposed to sterling if this is the sort of thing that goes on?”.

These are the strangers on whose kindness Mark Carney told us we relied and we antagonise them at our peril. That is what worries me more than anything else: that we suppose that foreigners will always want to buy gilts. Why should they? You could run a huge international portfolio and have zero allocation to sterling at the moment. If you were in Singapore or New York, you might be more tempted to do that than you would have been a month ago. We should not do anything else to make this worse. Everything is being done by the new Chancellor to steady the ship—thank goodness—but moves like this proposed measure just go in entirely the wrong direction as far as I am concerned. I think it is very dangerous.

[Peter Grant]

Q How effective has the UK been at keeping dirty money out of the financial services sector?

Martin Taylor: I do not know. I probably have the same suspicions that you have. London has a huge financial sector and dirty money is easier to hide in places where there is lots of money than in places where there is not very much. I have never worked in, or with, the Financial Conduct Authority, but sometimes it gets blamed when things go wrong, which is a bit like blaming the police for crime, if you know what I mean. There is a lot of dirty money in the world and a lot of it will try to come here. I think the regulators do their best.