Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Guy Opperman Excerpts

2nd reading
Tuesday 8th June 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I beg to move, That the Bill be read a Second time.

In the United Kingdom there are a wide range of opportunities for people to invest. The Government’s role is to try to ensure that the system of regulation and financial investment is suitably robust, so that individuals are treated fairly and have confidence in the financial system in which they invest. Unfortunately, no system of regulation can completely eradicate the risk that firms fail, or that there are bad actors intent on committing fraud. This short Bill is aimed at two areas where it is necessary for the Government to step in.

Clause 1 relates to a new Government scheme to compensate London Capital & Finance bond holders who lost money after the firm entered administration in 2019. Clause 2 will arrange a loan to the board of the pension protection fund to pay compensation to occupational pension scheme members who have been victims of pension fraud, following the recent High Court judgment in the case of PPF v. Dalriada. I will now expand briefly on those measures in detail.

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

The Minister will understand that part of the reason why we are here today is because of Dame Elizabeth Gloster’s excoriating report into the capacity of the Financial Conduct Authority. Is he certain that the FCA now has the powers and, crucially, the capacity it needs to ensure that consumers of financial services businesses are properly protected?

[Guy Opperman]

Yes, I believe that is the case. The Treasury and the FCA are working together. The FCA is under new management, as the hon. Gentleman will be aware, and there is an acceptance by the FCA of all the findings in Dame Elizabeth Gloster’s report. More particularly there is fresh thinking, one hopes, that will be applied going forward.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Will the Minister give way on that point?

[Guy Opperman]

For the last time, and very briefly.

[Kevin Hollinrake]

Powers are one thing, willingness is another. The FCA has shown a remarkable reluctance to hold people to account for incompetence or bad actors, as the Minister said. Will not those failings simply continue unless the FCA starts identifying individuals, within its own ranks or within the banks, for those failings, and holds them to account?

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[Guy Opperman]

Clearly, it is not possible to comment on specific future events, but Ministers are liable for the actions of civil servants, through vicarious liability, and we would expect regulators to take a similar approach and, putting it simply, to own the problems they are trying to solve. If that is a lesson learned from this sorry saga, in my humble opinion that would be a good thing. Clearly, it is for the FCA to take a good long, hard, look at itself, and other regulatory bodies, and decide how it will run itself going forward, with suitable input from Government.

[Neale Hanvey (Kirkcaldy and Cowdenbeath) (Alba)]

Will the Minister give way?

[Guy Opperman]

I will not give way any more. I apologise, but we are trying to do this whole debate in 58 minutes. Please bear with me.

As the House will be aware, on 19 April the Economic Secretary to the Treasury provided a written ministerial statement on the Government’s approach to setting up a compensation scheme for London Capital & Finance bond holders who lost money following the firm’s collapse in 2019. LCF was an FCA authorised firm, which sold unregulated non-transferrable debt securities, commonly known as mini-bonds, to investors. Sadly, 11,600 bond holders lost around £237 million when LCF went into administration. For some investors that will have formed part of an investment portfolio, but for others it will have represented a significant proportion of their savings.

Following LCF’s collapse, the Economic Secretary to the Treasury directed the FCA to launch an independent investigation into its regulation and supervision of LCF. As we have discussed, Dame Elizabeth Gloster led the investigation and concluded that the FCA did not effectively supervise and regulate LCF. The LCF business model was, it is accepted, highly unusual in both its scale and structure. In particular, the firm was authorised by the FCA, despite generating no income from regulated activities. That allowed LCF’s unregulated activity of selling non-transferrable debt securities, known as mini-bonds, to benefit from the impact of being issued by an authorised firm. While other mini-bond firms have failed, LCF is the only mini-bond firm that was authorised by the FCA and sold bonds in order to on-lend to other companies.

In response to the regulatory failings detailed in Dame Elizabeth’s report and the range of interconnected factors that led to losses for bondholders, the Government announced two things: first, they would establish a compensation scheme, and secondly, they would accept all of Dame Elizabeth’s report, as did the FCA. It is, however, important to emphasise that the circumstances surrounding LCF are unique and exceptional, and the Government cannot and should not be expected to stand behind every failed investment firm. That would, with respect, create the wrong incentives for individuals and an unacceptable burden on the taxpayer.

Clause 1 of the Bill, which is the LCF measure, covers two key elements. First, it provides parliamentary authority for the Treasury to incur expenditure in relation to the scheme. Secondly, it makes a minor technical change that disapplies the FCA’s rule-making processes for the purpose of the LCF compensation scheme. The Treasury intends to use part 15A of the Financial Services and Markets Act 2000 to require the Financial Services Compensation Scheme to administer the scheme at speed on the Treasury’s behalf. The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80% of the compensation that they would have received had they been eligible for FSCS protection.

Around 97% of LCF bondholders invested less than £85,000 and will not reach the compensation cap under either the Government’s scheme or the FSCS. The Government expect to pay out around £120 million in compensation to around 8,800 bondholders in total and are committed to ensuring that the scheme has made all payments within six months of this Bill securing Royal Assent.

As colleagues will be aware, this is a two-measure Bill, the second clause of which concerns the Department for Work and Pensions and involves loans to the board of the Pension Protection Fund. Clause 2 amends the Pensions Act 2004 by inserting a new section that will give the Secretary of State a power to lend money to the board of the Pension Protection Fund.

The Pension Protection Fund manages the Fraud Compensation Fund, which pays compensation to occupational pension schemes that have lost out financially due to dishonesty. When set up in 2004 by the Blair Government, the PPF and the FCF did not envisage that pension liberation schemes were in scope for FCF payments. This clause will allow compensation to an estimated 8,806 individuals who have been defrauded following the pronouncement of the recent Court judgment in the Dalriada case.

Pension liberation fraud involves members being persuaded to transfer their pension savings from legitimate schemes to fraudulent schemes, with promises of high investment returns or access to a loan from their pension scheme before the age of 55 without incurring a tax charge. The Pensions Regulator has now placed professional pensions trustees in charge of the affected schemes. Those trustees are seeking compensation on behalf of scheme members through the Fraud Compensation Fund.

Following receipt of a significant number of applications, the Pension Protection Fund sought guidance from the High Court in a test case on which schemes should be eligible for the Fraud Compensation Fund. The Court judgment in the case of the Pension Protection Fund vs. Dalriada was pronounced on 6 November 2020, and the High Court concluded that such pension liberation schemes would be eligible, subject to meeting eligibility criteria. The Government have decided to fully accept the Court’s judgment on this and are committed to ensuring that all those who have been victims of pension liberation schemes are able to claim through the Fraud Compensation Fund. However, it is estimated that claims will exceed £350 million, which is far greater than the £26.2 million of assets currently held in the Fraud Compensation Fund, hence the requirement for clause 2 of the Bill and the action that the DWP and the Government are taking.

This is a necessary, urgent and important Bill which will ensure financial protection and fair outcomes for those falling victim in these particular circumstances. My hope and expectation is that the Bill will receive widespread support, and I commend its contents to the House.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)

Guy Opperman Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[The Chair]

Ms Howard, you responded to Mr Thomas’s first question by saying that you would write to us. May I point out to you that you must write your response to both questions today? Minister Opperman, do you have any questions?

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

You are very kind, Chair, but I do not.

[The Chair]

Very good. Minister Glen?

--- Later in debate ---

[The Chair]

No problem. I now come to Minister Opperman.

[Guy Opperman]

Q I will ask a few limited questions of Mr Taylor. When the Pension Protection Fund and the Fraud Compensation Fund were created in 2004, am I right to say that the levy was an industry-funded system that was not envisaged to include these types of cases?

David Taylor: That is right. The types of cases that we were dealing with in the early years of the Fraud Compensation Fund were different. They did not involve schemes that had been set up specifically for the purpose of pensions liberation. They were more to do with, for example, employers who had failed to pay over into a scheme the moneys that they had deducted from their employers or conceptually straightforward fraud by which money was taken out of existing defined contribution or DB pension schemes.

[Guy Opperman]

Q Can we clarify the difference between what was called pension freedom and pension liberation? You have been aked two questions about pension freedoms. I think I am right—please correct me if I am wrong—in saying that the vast majority of schemes that are affected by the claims being made predate pension freedoms in 2015. Is that correct or wrong?

David Taylor: That is correct.

[Guy Opperman]

Q Secondly, the levy was created. Am I right to say that it has had a series of amendments between 2004 and 2021 and in the future consultation through which Governments of the day address particular issues and either raise or adjust the levy as it goes forward?

David Taylor: That is right. There have been a couple of changes over the years.

[Guy Opperman]

Q Your expectation, as I understand it, is that there will be a consultation on the levy in the autumn to assist in the payment of the disparity in the funding of the FCF?

David Taylor: That is right, yes.

[Guy Opperman]

Q Finally, am I right that the Pension Protection Fund produces an annual report?

David Taylor: Yes, we do. We are just about to publish our report for the year finishing 31 March 2021. It is quite comprehensive and is audited by the National Audit Office.

[Guy Opperman]

Q This relates to amendment 6, which will be moved later, but does the annual report include an assessment of the operation of the Fraud Compensation Fund?

David Taylor: It does, and I anticipate that there will be far more activity on the Fraud Compensation Fund in the year to come than there has been in previous years.

[The Chair]

If there are no further questions from Members, I shall thank the witness for his evidence. We now move on to the next panel.

We seem to be struggling to get all the witnesses on Zoom, so I will suspend the sitting until 10.45 am.

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[The Chair]

Thank you. Minister Opperman, we have four minutes.

[Guy Opperman]

Nothing from me, but thank you very much, Ms Ghani.

[The Chair]

Minister Glen?

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)

Guy Opperman Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[The Chair]

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

[Peter Grant]

[Guy Opperman]

[The Chair]

[Matt Rodda]

[Guy Opperman]

[Matt Rodda]

[Guy Opperman]

[Matt Rodda]

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Guy Opperman Excerpts

Report stage & 3rd reading
Wednesday 22nd September 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

It is an honour and privilege to respond at Report of this important Bill, which deals with the compensation due to many of our constituents up and down the country. I pass on apologies from the Economic Secretary to the Treasury who is on a ministerial trip to the United States on behalf of Her Majesty’s Government.

As the House will be aware, Dame Elizabeth Gloster’s report has already been taken through. It is a detailed report that deals with the regulatory failures that led to the collapse of LCF. The Government have accepted all four of the Gloster recommendations, and the FCA has committed to implementing all nine of the recommendations that were addressed to it, and to report publicly on the progress of those vital reforms.

Progress has already been made in implementing those recommendations. For example, the Treasury has consulted on proposals to regulate so-called non-transferable debt securities. In respect of regular reporting, hon. Members should be aware that the FCA report on the transformation programme takes place every six months. Its last report took place in July 2021, and the next report will be in spring next year.

Colleagues have raised a number of different matters, and I will attempt briefly to deal with them. The hon. Member for Harrow West (Gareth Thomas) recommended to Treasury colleagues that parliamentarians should hold the FCA to account directly, and I am sure my Treasury colleagues will respond to that proposal by letter. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) made some comments, and it is right that the FCA needs to be more proactive. To be fair, its new chief executive, with whom I know my hon. Friend is familiar, is being more proactive, and there is proper oversight on an ongoing basis. Several colleagues mentioned the online harms Bill. I have engaged with and met Google, Facebook, LinkedIn, and Instagram, as have colleagues from other parts of Government. Those individual companies need to step up to the plate, because it is very much in their domain to make real change.

[Rehman Chishti]

I am grateful to the Minister for allowing me briefly to intervene. He said he has had conversations with those social media companies. I sat on the Home Affairs Committee when we discussed online harms. What was the response of those social media companies, and what will it take to get them to do the right thing?

[Guy Opperman]

It will take strong pressure by fantastically good constituency MPs such as my hon. Friend, and others, so that those companies realise that they have an obligation to do the right thing in respect of the many constituents we represent. Clearly, though, these are matters to be considered by the Government, and I am sure my hon. Friend will be making representations to the Secretary of State for Digital, Culture, Media and Sport.

Let me turn briefly to the amendment. A lot of the speeches made had nothing to do with the amendment, and it is important to avoid creating the misconception that the Government will stand behind all bad investments in the future, where FSCS protection does not apply. The Government will establish a scheme based on the level of FSCS compensation, capped at £85,000. We have carefully considered the issues and are satisfied that the individual circumstances surrounding LCF are completely unique. Other mini-bond firms have failed, but LCF is the only mini-bond firm that was authorised by the FCA and sold bonds in order to on-lend to other companies. As the House will know, only three Government compensation schemes have been established in the past three decades, for Barlow Clowes, Equitable Life, and now LCF, despite many firms failing over that period. This type of intervention is the exception, not the rule.

Although the amendment is legitimate and considered to be principled and practical, there is a practical reality that the FCA is already reporting and is held to account by the Treasury. With respect, I therefore ask the hon. Member for Glenrothes (Peter Grant) to withdraw his amendment.

Question put, That the amendment be made,

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[Guy Opperman]

I rise to respond to colleagues and wrap up the Bill, and I do so with great humility because this is a very serious matter. Many of our constituents up and down the country, regardless of politics, have had grievous losses. It is to the Government’s great credit that from the date of the Gloster report, we have managed to consider the report, draft and introduce legislation, consider it and progress it through the House. I am pleased to say that within six months of Royal Assent, payments will have been made. That is the assurance that the Treasury is willing to give; I most definitely support it, and I am quite sure that colleagues will hold it to account for that. It is very important that the matter is properly scrutinised.

I thank all Members, present or not, who have contributed to the Bill. Clause 1, as colleagues know, will ensure that there is parliamentary authority for the Government to pay compensation to London Capital & Finance bondholders who have not already received compensation from the Financial Services Compensation Scheme. The Government recognise that this has been a very difficult time for LCF bondholders; I hope that the compensation will offer some relief for the distress and hardship suffered and provide closure on a difficult matter.

The Government expect to pay about £120 million in compensation to approximately 8,800 bondholders in total. The Economic Secretary to the Treasury has confidence that all payments will be made within six months of Royal Assent; in the context of previous examples of the process under successive Governments, that is exceptionally fast.

This is also about justice. Having been a prosecutor for 20 years, done nine murder trials and prosecuted as an investigator for the Department of Trade and Industry, when it existed, I can assure the House that I take exceptionally seriously the principle that all people should be held to account within the due process of the law and that our constituents should feel that the due process of the law will be followed. On the comments made in respect of the Attorney General and the Treasury, I can only say that responses will be given to individual Members of Parliament.

Clause 2 will give the Secretary of State for Work and Pensions the power to provide a loan to the Pension Protection Fund for the fraud compensation fund. It will ensure that compensation reaches approximately 8,806 individuals on an ongoing basis. It follows the High Court decision in the case of Board of the Pension Protection Fund v. Dalriada Trustees Ltd on 6 November 2020. Again, we have worked very quickly—within a year—to bring consideration and legislation forward so that the fund will have the £350 million that it needs to ensure that pension claims are met. Without these measures, there would not be the capability to make this compensation; that is why we need to provide the loan to ensure that the fund can continue to make compensation for all eligible schemes on an ongoing basis.

I thank the many people who have contributed to the Bill, including the private office and policy teams at the Treasury and the Department for Work and Pensions. I also thank all Members who have engaged with the Bill. Individual Members of Parliament have made a massive difference; I pay particular tribute to my hon. Friend the Member for Leigh (James Grundy), who spoke very movingly about his amazing campaign on behalf of his constituents. He can be very proud of the way he has championed their cause, and so can my hon. Friends the Members for Gillingham and Rainham (Rehman Chishti) and for Thirsk and Malton (Kevin Hollinrake) and the hon. Member for Harrow West (Gareth Thomas).

My hon. Friend the Member for Thirsk and Malton cited Warren Buffett as the guide to all matters going forward. I would respond with Lao Tzu, who it is fair to say is not often heard in the House of Commons: the longest journey starts with the shortest step. I consider that the Government have made many steps to making proper compensation and bringing the right people some recompense for a total injustice. I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read the Third time and passed.