Financial Guidance and Claims Bill [ Lords ] (Third sitting)

Gareth Thomas Excerpts

Tuesday 6th February 2018 Public Bill Committees

[John Glen]

It is a pleasure to serve under your chairmanship once again, Mr Rosindell.

Government amendments 3 and 4 are small consequential amendments to bring relevant provisions into line with the changes made by clause 24 to section 21 of the Financial Services and Markets Act 2000. Clause 24 amends FSMA to enable the Financial Conduct Authority to regulate specified activities in relation to claims management services in Great Britain. That includes extending section 21 of FSMA so that the financial promotions regime, which deals with advertising and marketing by regulated firms, applies to claims management activity. Government amendments 3 and 4 will ensure that the financial promotions regime can function effectively. I am sure that Members will agree that it is necessary to make those amendments to ensure that claims management activity is captured.

New clause 7, which was tabled by the hon. Members for Birmingham, Erdington, for Weaver Vale and for Lewisham, Deptford, seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interests of consumers and managing conflicts of interest fairly. Aside from the provisions in general consumer law, the FCA already applies rules to firms that conduct regulated activities in relation to their dealings with consumers.

First, regulated firms must adhere to the “principles for businesses”, which are fundamental obligations set out in the FCA handbook. Principle 2 requires firms to conduct their business

“with due skill, care and diligence.”

Principle 6 requires a firm to

“pay due regard to the interests of its customers and treat them fairly.”

Principle 8 sets out that a firm

“must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.”

Secondly, the FCA’s “client’s best interest” rule states that a firm

“must act honestly, fairly and professionally in accordance with the best interests of its client”.

That rule applies to a number of regulated activities. Thirdly, many FCA rules also contain an obligation on firms to take reasonable care for certain regulated activities. Finally, the rules in the FCA handbook are supplemented by more sector-specific rules in various FCA sourcebooks.

Under its existing objectives, when the FCA takes responsibility for the regulation of claims management companies, it will be able to apply its existing principles for businesses and to make any other sector-specific rules that may be necessary. To secure appropriate consumer protection, the FCA supervises against those rules and other provisions, and can take enforcement action against firms where necessary.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Does the Minister accept that there is a risk that the FCA has been captured by some of the bigger financial interests, and that additional legal protection is therefore required to rebalance how it operates to properly protect the consumer interest?

[John Glen]

I acknowledge that such concern has been widely expressed throughout the passage of the Bill. However, the FCA has issued total fines of more than £229 million. In its view, its regulatory toolkit is currently sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management companies and how they form an effective regulatory regime overall. In doing so, the FCA will need to take into account its statutory objective of securing an appropriate degree of protection for consumers. It will also consult openly and publicly on the proposed rules.

The final regime is not set without consultation or reference to the legitimate concerns raised during the passage of the Bill. I note the hon. Gentleman’s observations, but they can be accommodated by the way in which the FCA will handle the matter. Given that, the Government do not believe the new clause is necessary. According to the explanatory statement, the new clause would introduce a duty of care on claims management companies. I will provide some more detail on that duty of care because I have thought a lot about it and have new points that I want to raise following Second Reading. The Government recognise that there are different views on the merits of introducing a duty of care for financial services providers and what it would mean in practice.

Macmillan Cancer Support has run an excellent campaign drawing attention to that important issue. Last week I met Lynda Thomas and her team from Macmillan in the Treasury to discuss their work and their concerns around the proposed duty of care. They told me of their work with Nationwide and Lloyds. They have been working in partnership with the sector on the role of firms in supporting customers.

[John Glen]

I acknowledge the case, but it is not for me as a Treasury Minister to comment on it. We need to be clear about the impact of the duty of care and examine it carefully. It is right that we challenge practices that are not up to standard. The question is how we most effectively achieve that without wider collateral damage.

On Macmillan’s partnership work in the financial services sector in supporting customers affected by cancer, I pay tribute to the work done and I am grateful for the insights that it brings, but there is huge uncertainty around the potential impact a duty of care could have on both firms and consumers. As with all significant policy changes, it is important to understand all potential pros and cons. I hope Members agree that there would need to be a thorough assessment of the potential impact of a duty of care before any decision is made on a change of policy. For example, a duty of care might enable consumers to bring financial services firms to court. There might be significant cost, complexity and time involved with that, leave alone codifying exactly what the duty of care would mean.

In turn, a duty of care might lead to a negative impact on product provision and approach to innovation, as firms might not want to risk legal challenge based on an untested new concept. Increasing operational costs for firms as a result of a duty of care will inevitably lead to higher prices for consumers, including those in the most vulnerable category. Given those considerations, I hope Members agree that it would not be appropriate for the Government to amend the Bill before a full assessment of the potential impact has been conducted.

The Government believe that the FCA, as the UK’s independent conduct regulator for financial services, is best placed to evaluate the merits of a duty of a care. Recognising the pitch and depth of the legitimate concerns raised, last week I met Andrew Bailey and discussed the duty of care with him, and the FCA will discuss it further. Concern has been expressed that, in the determination to issue a discussion paper post-Brexit, there was too much of a delay. I pressed Andrew Bailey on the need to bring that forward. He understands and acknowledges the desire of Parliament for progress on evaluation, so the FCA now proposes to issue a discussion paper later this year. It will invite contributions from all interested parties on the case for and against a duty of care, what form such a provision might take and consequential issues arising from adopting it. That will be an open process, designed to gather views. I am grateful to the FCA for its commitment to accelerate its proposed timetable.

[Gareth Thomas]

I commend the Minister for pressing Andrew Bailey, because the FCA under his leadership has a reputation of having become a bit pedestrian. However, I do not see why there is a clash between adding the new clause, as my hon. Friend the Member for Birmingham, Erdington proposes, and cracking on with the consultation exercise that the Minister just described. Surely they gel nicely.

[John Glen]

My view, and the Government’s view, is that the pace of that consultation process needs to be stepped up and the FCA needs to respond, with all consequences in mind for vulnerable people with respect to the costs of services and the protections legitimately achieved through the FCA’s activity.

I stress that the FCA has a close focus on vulnerability in its broader work. I note the concerns of the hon. Member for Harrow West, but it works in the interests of all consumers of financial services. In October, the FCA published its “Financial Lives” survey, the first annual large-scale survey of 13,000 interviews, designed to add a substantial new source of data to the regulator’s understanding of consumers in retail financial markets. Subsequently, it published the “Approach to Consumers” paper, which details how it will measure the effects of its actions on consumers, particularly with respect to access and vulnerability. I and the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham, take this matter seriously. We will challenge the FCA on the further steps that need to be undertaken.

[Gareth Thomas]

May I push the Minister a little harder? I could understand it if he was arguing that there should be a change to the proposal made by my hon. Friend the Member for Birmingham, Erdington, saying that regulations should be brought forward to give Government the chance to bring in a duty of care once the consultation had taken place. Instead, he seems to be saying, “Let’s not bother putting anything in the Bill that gives us the power to bring that in later. Let’s just wait and see—mañana!—when the FCA can be bothered to get round to the consultation exercise. Then we might look at bringing forward primary legislation.” My worry is that an opportunity for primary legislation will not come around again. I therefore press him to see whether he could be a little more sympathetic to the case my hon. Friend will advance.

[John Glen]

I am grateful to the hon. Gentleman for his remarks. I would not characterise the Government’s position as, “Let it happen mañana and take our hands off the tiller.” I met Andrew Bailey, and this was not his starting point. It is for Ministers to talk to the FCA, take the views of Parliament as clearly expressed by Members on both sides of the House, and use that pressure to force the FCA to address the issue in a comprehensive way that deals with the real experience of our constituents.

The Government have set out that process, and I have set out the rules and facilities that exist for the FCA. I am convinced there is a process in place that will enhance the necessary protection.

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[John Glen]

I am grateful to the hon. Gentleman for his comments. There is broad agreement on how serious the issue is, but I would characterise the Government’s approach as wanting not to send a message but to secure an outcome. They want to secure an outcome when they understand exactly what the impact of the changes might be.

As I said in some of my earlier remarks, there is huge uncertainty about how a potential duty of care would impact on firms and consumers. That is why I am very pleased with the accelerated timetable. I acknowledge that there is no absolute clarity about what will flow from that, but that is because we do not know what the outcome of the discussion will be. However, I take on board the hon. Gentleman’s concerns and I acknowledge his sensitivity to what Macmillan has said—it is unacceptable that 11% of people who have cancer tell their financial service provider—but it is also true, as my hon. Friend the Member for Bexhill and Battle said, that not all banks are doing a poor job. I heard from Macmillan about the wonderful work that Nationwide has done, and I think it is for other banks to reflect on what they need to do to change their behaviours.

[Gareth Thomas]

Nationwide is not a bank; it is a building society, with a very different tradition to the corporate interests of the big banks. I make that as an aside. Although I am not normally a fan of secondary legislation as opposed to primary legislation, I wanted to press the Minister: will he consider the broader point made by my hon. Friend the Member for Birmingham, Erdington—that there might be a case, surely, for the Minister to consider bringing forward on Report the scope for secondary legislation to bring in such a duty of care once the FCA, when it can be bothered, finally produces its consultation document?

[John Glen]

I am grateful for the hon. Gentleman’s comments, but I do not share his characterisation of the FCA’s willingness to engage on this. As I set out, the FCA is engaged in dialogue with Macmillan and has now accelerated the timetable for dealing with the subject. I will reflect on the comments made and see what can be said to give more assurance further on, but I am convinced that the dialogue with the FCA will lead to a proportionate outcome that takes full account of the impact. I therefore reiterate my hope that the new clause will be withdrawn.

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[Gareth Thomas]

I have concerns about clause 30. If the Bill is put on the statute book as drafted, with the current commencement provisions in clause 30, the new financial guidance body might not be as effective as we would all have hoped. Ministers might want to address these concerns and reflect on whether the commencement provisions are still appropriate.

The first concern is whether the financial guidance body has access to sufficient data to help guide it on the allocation of the debt advice funding that will continue to be available as a result of the levy on banks. Unlike in the United States, we do not have in law a comprehensive requirement that banks and other lenders have to provide clear datasets to Government and regulators on where, and at what level, debt is being incurred. Therefore, one cannot track exactly where the most indebted parts of the country are.

I raise that concern because a number of years ago I had the opportunity to visit the estate of Thamesmead, which straddles the boroughs of Bexley and Greenwich. Thamesmead is an estate of about 55,000 houses, but it had no bank branch at all. As a result, the only lenders available were payday lenders and other high-cost providers of credit.

[The Chair]

Order. The hon. Gentleman appears to be speaking not to the amendment before us, but to one that has previously been debated. I remind all hon. Members that they must stick to the amendments before the Committee at this stage.

[Gareth Thomas]

I am grateful for your guidance, Mr Rosindell. I am concerned that we should not rush to commence the legislation until we have had an assurance that the new financial guidance body will have accurate data about which parts of the country have the highest levels of debt and the highest levels of cost. I am seeking to use this debate on clause 30 stand part to ask Ministers what confidence they have that the new body will be able, without further legal changes, to know where the most highly indebted parts of the country are, and therefore where the most debt advice funding should be allocated.

One of the great contrasts between this country and our great ally, the United States of America, is that there is provision in American law for banks, building societies and other lenders to have to report to bodies what they are lending and at what rate. Such a provision would allow the new financial guidance body to work out which areas might need a higher level of debt advice funding.

The second reason why I gently suggest that we should not rush to commence the Bill is that I believe the Minister should reflect—I gently press him to do so—on whether credit unions, which are a key tool for tackling the level of indebtedness in this country, have all the powers they need to support the new financial guidance body to take the necessary action to bring indebtedness down. Clearly, we want to ensure that there is still access to credit, but we want it to be affordable.

The third and final reason why I gently suggest Ministers should not rush to commence the Bill is that I believe they should check whether some of the worst, highest cost lenders, such as BrightHouse, pay an appropriate levy, under the provisions of previous Bills, to fund debt advice. It certainly seems to me—

[The Chair]

Order. The commencement clause does not give us the ability to discuss anything we wish to discuss. We need to stick clearly to the amendments before us, rather than using this as a way to discuss other matters.

[Gareth Thomas]

I am extremely grateful to you, Mr Rosindell, because you made your intervention just as I was drawing my remarks to an end. Given your great act of charity, I have made the three points I wanted to make, and I now look to the Minister to address my concerns.

[Guy Opperman]

That was undoubtedly the most ingenious way of creating a submission. I have to confess that, when I looked at the commencement order that I have to speak to, I did not expect to have to answer three specific points, but I hope I can give the hon. Gentleman a detailed answer. I assure him that if I fail in that task, I will give him a definitive answer next Monday, when we will meet to discuss these matters.

Let me take the hon. Gentleman’s points in reverse order. BrightHouse will be covered by the levy for the single financial guidance body. I believe that I will be able to give him more detail when I see him in 10 days’ time.

The hon. Gentleman will know that I founded and built up a credit union. I think I am the only MP to have been mad enough to do so—the grey hair I am rapidly acquiring is due to that mad endeavour, of which I am extremely proud. I am no longer specifically involved in it, but both I and my hon. Friend the Member for Salisbury are passionately committed to credit unions. We will review the nature of credit unions and how they are provided for statutorily under the Credit Unions Act 1979. I am happy to discuss that with the hon. Gentleman separately.

Let me make three points on access to data. First, the Money Advice Service already performs that service by creating a data bank and an information process by which it can judge the way ahead. Secondly, clause 18 specifically addresses requirements for the disclosure and interaction of data between the various bodies to ensure that the point the hon. Gentleman raised is addressed. Thirdly, with regard to the Bill as a whole, FCA work is also going on to obtain a quarterly dataset. Both the FCA and the Money Advice Service are doing that. I will happily reply in more detail to the three points that he rightly, and very ingeniously, put to me.

[Gareth Thomas]

I am grateful to the Minister for his generous response. Perhaps he would be willing to look kindly on a letter setting out some of the concerns about the dataset that is currently provided. I gently suggest that Ministers might engage with UK Finance to encourage the release of further data to help make that a more useful exercise.

[Guy Opperman]

I would be delighted to receive such a letter. I commend the Government amendments to the Committee.

Amendment 7 agreed to.

Amendments made: 8, in clause 29, page 25, line 37, at end insert—

“(3A) In section (Occupational pension schemes: requirements to recommend guidance etc)—

(a) subsections (1) to (5) extend to England and Wales and Scotland;

(b) subsections (6) to (9) extend to Northern Ireland.

(3B) Paragraph 25 of Schedule 3 extends to England and Wales and Scotland.”

New subsection (3A) updates the extent clause so that the amendments to the Pensions Schemes Act 1993 in NC2 extend only to England and Wales and Scotland and the amendments to the Pension Schemes (Northern Ireland) Act 1993 extend only to Northern Ireland. New subsection (3B) contains text previously in subsection (6) in consequence of restructuring this clause.

Amendment 9, in clause 29, page 25, line 38, leave out subsections (4) and (5) and insert—

“(4) Part 2, other than the provisions mentioned in subsections (5) and (5A), extends to England and Wales and Scotland.

(5) The following provisions extend to England and Wales—

(a) section24(12) and Schedule4;

(b) section27;

(c) section (PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation to FCA).

(5A) Section (Cold calling about claims management services) extends to England and Wales, Scotland and Northern Ireland.”

This amends the extent clause, so that the new clause inserted by NC3 extends to England and Wales only, and the new clause inserted by NC6 extends to England and Wales, Scotland and Northern Ireland.

Amendment 10, in clause 29, page 25, line 42, leave out subsection (6) and insert—

“( ) This Part extends to England and Wales, Scotland and Northern Ireland.” —(Guy Opperman.)

This amendment contains a minor drafting change consequential upon the restructuring of the extent clause.

Clause 29, as amended, ordered to stand part of the Bill.

Clause 30

Commencement

Amendments made: 11, in clause 30, page 26, line 13, at end insert—

“(1A) Subsections (6) to (9) of section (Occupational pension schemes: requirements to recommend guidance etc) come into force on a day appointed by order made by the Department for Communities in Northern Ireland.

(1B) An order under subsection (1A) may make—

(a) transitional, transitory and saving provision in connection with the coming into force of any provision in section (Occupational pension schemes: requirements to recommend guidance etc)(6) to (9);

(b) incidental and supplementary provision, and

(c) different provision for different purposes,

and the power to make such an order is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”

This amendment gives the power to bring into force the provisions amending the Pension Schemes (Northern Ireland) Act 1993 in the new clause inserted by NC2 to the Department for Communities in Northern Ireland.

Amendment 12, in clause 30, page 26, line 14, leave out “28” and insert “(PPI claims: interim restriction on charges imposed by legal practitioners after transfer of regulation to FCA)”

This amends the commencement clause, so that the new clause inserted by NC3 comes into force 2 months after Royal Assent.

Amendment 13, in clause 30, page 26, line 21, at end insert “except section (Occupational pension schemes: requirements to recommend guidance etc) (6) to (9)”

This amendment is consequential on amendment 11.

Amendment 14, in clause 30, page 26, line 29, at end insert “, and

(ii) section (Cold calling about claims management services)”

This amends the commencement clause to provide for NC6 about cold calling in relation to claims management services to be brought into force on a day appointed in regulations made by the Secretary of State.

Amendment 15, in clause 30, page 26, line 31, at end insert “, other than section (Cold calling about claims management services)”

This amendment is consequential on amendment 14.

Amendment 16, in clause 30, page 26, line 31, at end insert—

“( ) The Treasury must obtain the consent of the Lord Chancellor before making regulations under subsection (3) or (5) in relation to section (Legal services regulators’ rules: charges for claims management services).”—(Guy Opperman.)

This amendment requires the Treasury to obtain the consent of the Lord Chancellor before making regulations for the commencement of the new clause inserted by amendment NC4.

Clause 30, as amended, ordered to stand part of the Bill.

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[John Glen]

Government new clause 6 is about cold calling made for the purposes of providing claims management services. As Members will be aware, that topic has been discussed at length during the passage of the Bill. The Government have listened to the debates closely and committed in the other place to table an amendment that would restrict cold calls made by claims management companies. The new clause makes good on that commitment.

Calls from claims management companies and other entities are not merely a source of irritation, but can result in extreme distress to those answering the calls, especially the most vulnerable in our society. As the Government have stated in previous debates, we have forced companies to display their calling line identification when they call. We have made it easier to prosecute those involved in making the calls by removing the threshold for financial penalties to be administered and we have strengthened the Information Commissioner’s powers for imposing fines on wrongdoers.

In addition, the claims management regulator and the Solicitors Regulation Authority have taken action against claims companies and solicitors that have breached tough direct marketing rules, including in relation to accepting illegally generated leads. However, we appreciate that we need to do more to truly eradicate the problem. New clause 6 seeks to ban cold calls made for the purposes of direct marketing in relation to claims management services, except where the person called has given prior consent to receiving such calls. The new clause will insert a provision into the Privacy and Electronic Communications (EC Directive) Regulations 2003, which govern unsolicited direct marketing.

The new clause will ensure that any call, whether it is from a claims management company, an individual or a lead generator, made for the purposes of direct marketing in relation to claims management services, is an unlawful call unless the receiver has explicitly consented to that call being made to them. The new clause takes the onus away from the individual to opt out of such calls being made to them—by signing up to the telephone preference service, for example—and puts the responsibility back on the organisation and its due diligence before making such calls.

There are complexities in legislating, including those related to navigating EU frameworks. However, the Government are convinced that the new clause will have the effect of making unwanted calls from claims management services unlawful.

[Gareth Thomas]

Is there not a concern that, having given consent to be phoned once, an individual might then be subject to a series of unwanted phone calls? One could imagine a situation in which an initial call is wanted by one of our constituents, but a company takes advantage of the permission to make a series of unwarranted further calls by arguing that it has the legal power to do so. What would happen in that situation?

[John Glen]

I will need to write to the hon. Gentleman on the mechanics of what can be done subsequently and how quickly and am happy to do so as quickly as possible.

[Gareth Thomas]

I apologise for intervening again, but I am thinking of an elderly constituent. One hears of scams and constituents being taken advantage of. How do we protect the individual who genuinely wants information and perhaps gives permission once, but then, perhaps because of their age or infirmity or whatever, they start to get taken advantage of? How do we prevent that?

[John Glen]

I am sorry that I cannot give the hon. Gentleman a full service response, but I will look into that issue carefully and keep in mind the specific circumstances he has described, which I will seek to address in my reply.

The new clause is another robust proposal to add to our package of measures to tackle unsolicited marketing calls. I hope they will be gratefully received by consumers across the UK.