Contingent Liability Notification and Disclosure of Asset Sale
John Glen Excerpts(3 years, 2 months ago)
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The Economic Secretary to the Treasury (John Glen)
I can confirm today that I have laid a Treasury Minute informing the House of certain liabilities that HM Treasury has taken on in authorising the sale of the remaining loan assets and share capital of Bradford & Bingley plc (B&B) and NRAM Limited. Metric Impact Sale proceeds c. £5.0 billion Hold valuation Net present value of the assets if held to maturity using Green Book assumptions The price achieve this above the hold value range. Public Sector Net Investment Nil Decreased by: Current budget £350 million in 2024-25 Increased by: Public Sector Net Borrowing £350 million in 2024-25 Public Sector Net Debt Reduced by £5.0 billion— £4.4 billion in 2020-21 and £0.6 billion in 2021-22 Public Sector Net Liabilities Increased by £100 million in 2020-21 Public Sector Net Financial Liabilities Increased by £100 million in 2020-21
This sale generates proceeds of £5.0 billion for the Exchequer, and will see NRAM, B&B and their subsidiary companies, including Mortgage Express (MX), together with their remaining mortgages and loan portfolios, sold to a consortium comprising Davidson Kempner Capital Management LP (Davidson Kempner) and Citibank (Citi). The majority of the financing for the transaction is being provided by funds managed by Pacific Investment Management Company LLC (PIMCO).
The transaction has been agreed and will complete in two stages. The first stage is the sale of the loans to Citi which is expected to complete within the next few weeks. The second stage is completion of the sale of the companies, and will see the sale of the legal entities of B&B and NRAM to Davidson Kempner. This stage is subject to the receipt of regulatory approvals from the Financial Conduct Authority (FCA)and is expected to take place in the summer.
This sale constitutes a significant milestone in the work to achieve the Government’s aim of returning the institutions brought into public ownership as a result of the 2007-2008 financial crisis to private ownership.
Rationale
It is Government policy that where a Government asset no longer serves a public purpose, or that purpose can be more efficiently realised with the asset in private ownership, the Government may choose to sell that asset, subject to value for money and market conditions being supportive.
The Government intervened in the financial sector to preserve financial stability. As this policy objective has now been met, those assets which came into public ownership should be returned to the private sector.
Format and Timing
The Government, UK Asset Resolution (UKAR) and UK Government Investments (UKGI) concluded that this sale achieves value for money having:
Conducted a rigorous analysis of whether market conditions were conducive for the sale of this portfolio:
considered whether the transaction had generated sufficient competitive tension to lead to a properly competitive process; and
conducted an assessment of the fair market value for the assets, including the legal entities of B&B and NRAM.
The sale made use of a structured bidding process, which has been shown to create competitive tension and has been used for previous Government asset sales.
Customer protections:
A key element in selecting the successful bidder was the treatment of customers. As in previous UKAR asset sales, bidders were required to agree to a robust package of customer protections before their bids were considered on other factors.
Customers do not need to take any action and can be assured that there will be no changes to the terms and conditions of any loans as a result of this transaction. They will continue to receive the same protections for the lifetime of their mortgage as they do today, and their right to re-mortgage will be unaffected.
The structure of this transaction also means that the legal title holder and administrator of customers’ loans will not change at the point of sale. B&B, NRAM and MX will remain the legal title holders of the loans. Computershare will continue to service the loans.
Only the beneficial owner will change as a result of this sale, and the beneficial owner does not have an active role in the management of customers’ loans.
B&B, NRAM, MX and Computershare are all regulated by the FCA. This means that customers will continue to enjoy the protections of the FCA’s Treating Customers Fairly(TCF)principles and its Mortgages and Home Finance: Conduct of Business(MCOB)rules, as well as recourse to the Financial Ombudsman Service.
As the customer protections require that the administrator and legal title holder of these loans will always be an FCA-regulated entity, customers will continue to enjoy the protection of the FCA’s rules if the legal title holder of their loans changes again at some point in the future.
Contingent Liability
On this occasion, due to the sensitivities surrounding the commercial negotiation of this transaction, it was not possible to notify Parliament of the particulars of the contingent liabilities in advance of the sale announcement.
The contingent liabilities HM Treasury is taking on include those which relate to certain warranties and indemnities that were given to the purchasers and which confirm regulatory, legislative and contractual compliance relating to the loans, assets and the share capital of the companies. The maximum contingent liability arising from the warranties and indemnities to the loan assets is approximately £4.9 billion.
The maximum contingent liability arising from the warranties and indemnities relating to the share capital of the companies is c.£290 million—100% of the purchase price of the shares. More information on these contingent liabilities has been set out in a Departmental Minute that has been laid before the House alongside this statement.
Fiscal Impacts
The impacts on the fiscal aggregates, in line with fiscal forecasting convention, are not discounted to present value. The net impacts of the sale on a selection of fiscal metrics are summarised as follows:
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Alcohol Duty
John Glen Excerpts(3 years, 2 months ago)
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The Economic Secretary to the Treasury (John Glen) [V]
May I start my response by congratulating my hon. Friend the Member for Moray (Douglas Ross) on securing this debate, particularly since his constituency of Moray lays claim to hosting the largest number of distilleries in any United Kingdom constituency? He has indeed been a tireless advocate for the interests of Scotland. From lobbying for the removal of US tariffs to ensuring officials press on with the alcohol duty review, he has continually supported the Scottish alcohol industry, and he is absolutely right to do so. Distillers such as those in Moray are not just a source of refreshment; they are part of our heritage, they are significant tourism attractions in their own right, and they are important employers up and down the country. In 2019, the number of visitors to the Speyside whisky trail surpassed 2 million. That is a reflection of the sector’s remarkable growth, which my hon. Friend mentioned, and the innovation that it has seen in recent years. I am confident that, post pandemic, the sector will continue to flourish, attracting millions more visitors each year. Distillers, like so many other businesses, have had a very challenging year, and as hon. Members will know, the Government have acted decisively to help them, just as we have acted decisively to help thousands of other businesses across other sectors.
Today, though, we are debating the future of the UK’s alcohol duty system—a system that in fact has a long and fascinating history. Dating back to 1643, it was first introduced by Parliament as a way of financing its fight in the English civil war. Over time, the UK alcohol duty system evolved to become an important provider of Government revenue, and that is very much still the case. As my hon. Friend noted, the sector has experienced an impressive period of growth, helping to generate billions of pounds for the UK Exchequer. Each year the UK’s alcohol duty system raises over £12 billion, helping to fund public services such as the NHS. In that way it helps to address the harm caused to society and public health by excessive or irresponsible drinking.
Those benefits, though, are balanced by the Government’s pragmatic, reasonable approach to the level of duty applied. The Government have cut or frozen duty at seven of the last eight Budgets. In fact, the price of a typical bottle of Scotch whisky is £1.79 lower than it would have been, since we ended the spirits duty escalator seven years ago, in 2014.
As hon. Members may be aware, the current UK duty system is comprised of four distinct categories—beer duty, cider duty, spirits duty and wine duty. That means that the tax applied to each unit of alcohol varies according to whether the alcohol used to produce it came from malt, grapes or apples. That inconsistency was, in part, a consequence of EU directives. Now that the United Kingdom has left the European Union, the Government have the opportunity to take a fresh look at the alcohol duty system to see whether we can create a system that is simpler, more consistent, less administratively burdensome to producers, and does a better job of protecting public health. I know that many of our constituents agree that there is need for reform.
My hon. Friend has once again eloquently voiced his concerns, urging the Government to create a system that works in the best interests of business, his constituents and the industry as a whole. As he noted, at Budget 2020 the Chancellor announced that the Government would review the alcohol duty system. That, of course, was a commitment made in our manifesto, which, as my hon. Friend said, was announced when the Prime Minister visited the distillery in his constituency at Roseisle during, I think, the election campaign, and this review came about only because of the campaigning efforts of my hon. Friend and other Scottish Conservatives to raise the need for reform. The review has come about in part because the Treasury recognises that the alcohol drinks industry is innovative and entrepreneurial, and that traditional assumptions may no longer hold. I was heartened to hear from his speech that Scotland is turning its distilling expertise to gin, with explosive growth in the number of Scottish gin brands.
Since that announcement at the 2020 budget, my officials and my hon. Friend the Exchequer Secretary have engaged with stakeholders across the industry, as well as with public health officials and tax experts. Our goal has been to assess how well the alcohol duty system works now and how it could work better in future. A call for evidence launched in October 2020 asked a series of key questions such as: overall, how well do the different duties work when combined together as a system? Is there a case to move to a standard method of taxation? Would a more consistent systemic approach to indexing alcohol duties be of benefit? Could we reduce burdens by standardising the way businesses declare and pay their duty?
I am pleased to say that we received more than 100 submissions expressing, as one might expect, a wide range of views, which we—my officials and my hon. Friend the Exchequer Secretary—are now analysing. We will provide further updates from the review in due course, as quickly as we can. I would like to assure my hon. Friend that my right hon. Friend the Chancellor and my hon. Friend the Exchequer Secretary are taking a very close interest in this issue and the detailed analysis and work that has been undertaken and are keen to make the most swift progress possible.
Since my hon. Friend the Member for Moray has also raised the issue of small brewers’ relief, I should add that the Government are running a separate technical consultation specifically on this issue. That closes on 4 April. I encourage any craft breweries based in his constituency or in Scotland to make their views heard by responding to this consultation. The Chancellor will set out plans for the coming year at the Budget next Wednesday, and hon. Members will understand that it would be inappropriate for me to comment in any more detail at this stage. I note that my hon. Friend has also rightly raised concerns about the 25% US tariffs on Scotch whisky, and I agree entirely with his assessment that the continued application of these tariffs is particularly disappointing and unfair, given that they have nothing to do with the Scotch whisky industry. To be clear, the UK has negotiated intensively with the US and the EU on these disputes and remains committed to reaching a fair and balanced settlement. I share my hon. Friend’s desire to help struggling producers and reach a settlement that works for the UK as a whole.
To sum up, Mr Deputy Speaker, the UK’s alcohol duty system makes an important contribution to funding vital public services and addressing alcohol-related harms. However, as my hon. Friend has compellingly explained, once again the current system is in need of reform. Leaving the EU provides an invaluable historic opportunity to undertake that reform, and our guiding intention is to do what we can to support this country’s historic and vibrant drinks industry for the long term. By challenging and tackling existing anomalies and reducing inconsistencies that distort the market, our hope is to support innovation and growth within the industry and thereby give the sector the future that it deserves.
I thank my hon. Friend for his contribution today. I know that he will be a little bit frustrated that I cannot set out a clearer timetable, but he certainly can know that the Government are fully committed to addressing the issue and will urgently respond to the challenge that he has set us.
Mr Deputy Speaker (Mr Nigel Evans)
At the end of this week I thank everybody at the broadcasting unit, the technicians and their teams for working supremely well to ensure that the vast majority of Members were able to make their contributions remotely, thereby making this Parliament much safer for those who have to work here.
Question put and agreed to.
Normal Minimum Pension Age: Consultation
John Glen Excerpts(3 years, 2 months ago)
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The Economic Secretary to the Treasury (John Glen)
The normal minimum pension age is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge (unless they are taking their pension due to ill health). The normal minimum pension age is currently age 55. This minimum helps to ensure that tax relieved pension savings are used to provide an income, or funds on which an individual can draw, in later life. In 2010 the minimum pension age was increased from age 50 to 55. In 2014, the coalition Government announced that the normal minimum pension age would increase from age 55 to 57 in 2028.
Since the normal minimum pension age was introduced, life expectancy at birth for both men and women has continued to increase, according to the latest data from the Office for National Statistics. It has continued to increase since the announcement in 2014. Increasing the normal minimum pension age reflects increases in longevity and changing expectations of how long we will remain in work and in retirement. Raising the normal minimum pension age to age 57 could encourage individuals to save longer for their retirement, and so help ensure that individuals will have financial security in later life.
The Government therefore reconfirm their intention to legislate to increase the normal minimum pension age to age 57 on 6 April 2028 and are today publishing a consultation on how to implement the increase. The consultation is available at
www.gov.uk/government/consultations/increasing-the-normal-minimum-pension-age-consultation-on-implementation.
The increase to age 57 will not apply to those who are members of the firefighters, police and armed forces public service pension schemes. This reflects the unique nature of these occupations. The consultation also sets out the proposed protection regime for some other pension savers. The Government do not intend for this increase to apply to individuals who already have unqualified rights to take a pension at an earlier age. Protected pension ages will be specific to an individual as a member of a particular scheme, so protection will not apply to other schemes where there is no existing right held.
People in the UK are living longer, and the proportion of over-50s in the labour force is continuing to increase. The Government recognise the importance of supporting over 50s to remain active in the labour market and are committed to supporting them to find and retain employment. The Government are working with employers via the business champion for older workers to enable over-50s to retain employment and are aiming to provide early and targeted employment and skills support to help individuals move back into work, including into new sectors.
This consultation on implementing the increase in normal minimum pension age will run for 10 weeks.
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Oral Answers to Questions
John Glen Excerpts(3 years, 3 months ago)
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Carolyn Harris (Swansea East) (Lab)
The Economic Secretary to the Treasury (John Glen)
Throughout the covid crisis, the Government have sought to protect people’s jobs and livelihoods, and support businesses and public services across the UK. We recognise that food and drink wholesalers have been severely impacted by the necessary action we have taken to control the virus, but those businesses have been eligible for a number of our economic support schemes, including the job retention scheme, VAT deferral and bounce back loans.
Carolyn Harris [V]
Food service wholesalers have again seen their trade drop by 95% with hospitality businesses closing, yet they continue to supply our hospitals, schools, care homes and prisons at a financial loss. Many now are on the brink of collapse. What more are the Government going to do to help the industry, which is suffering a double whammy of lost stock and ongoing fixed costs?
John Glen
I thank the hon. Lady for her question, and, indeed, I met representatives of the sector in my constituency a few weeks ago. The Treasury is in regular discussion with the Department for Environment, Food and Rural Affairs and they are assessing the systemic risks to the food supply chain of the fulfilment of those public sector contracts to schools, hospitals and prisons. We keep these matters under close review, but at the moment there is no threat to those supply chains and, as I referenced, the options that are available to those firms continue to be available.
Chris Bryant (Rhondda) (Lab)
Stephen Hammond (Wimbledon) (Con)
The Economic Secretary to the Treasury (John Glen)
Equivalence is an autonomous technical process that each side is undertaking separately. Officials have had a number of meetings with their counterparts in the Commission over the past 12 months to discuss each other’s processes, and we remain open and committed to continuing dialogue with the EU about its intentions for equivalence.
Stephen Hammond [V]
I thank my hon. Friend for that answer. Clearly, it would be disappointing if the EU could not follow the UK’s offer on equivalence, given the relative starting positions. Will my hon. Friend comment on the Government’s ambitions with regard to mutual recognition of professional qualifications? What are those ambitions and does he hope that they will be achieved by the signing of the memorandum in March?
John Glen
My hon. Friend has a lot of expertise in this area. He will know that, alongside the trade and co-operation agreement, we had a joint declaration to establish a structured regulatory co-operation for financial services and to discuss a whole range of matters around equivalence determinations going forward. The memorandum of understanding will be agreed in discussions between the EU and UK by March 2021. That will establish a framework for that co-operation. It would not be appropriate for me to give a running commentary on that, but the plans will come to fruition over the coming weeks.
Mr Pat McFadden (Wolverhampton South East) (Lab) [V]
The Brexit deal was, in effect, a no-deal outcome for financial services. Already some trade has moved, and there is big uncertainty hanging over access to European markets for this vital UK sector. Can the Minister confirm that it is in fact a Government negotiating aim to secure equivalence recognition for UK financial services in the memorandum of understanding being discussed between now and the end of March?
John Glen
To clarify for the right hon. Gentleman, the equivalence granting process is an autonomous, separate process from the MOU discussion. The MOU is about a framework to evaluate the future direction of financial services across the EU and UK. I remain very ambitious for the financial services sector. The Chancellor and I are continuing to have a dialogue—with roundtables with representatives of the sector this week and next week, as well as one-to-one meetings—to ensure that we listen to the sector, and respond appropriately and ambitiously for the future.
Paul Blomfield (Sheffield Central) (Lab)
Ian Levy (Blyth Valley) (Con) [V]
The Economic Secretary to the Treasury (John Glen)
I thank my hon. Friend for his question. Across the pandemic, the Government have created a number of innovative responses, like Eat out to Help Out. We will continue to examine very carefully what package of measures we need to intervene with, and the Chancellor has indicated that he will be coming forward at the Budget with an update to the House on that package in due course.
James Sunderland (Bracknell) (Con)
Given the current imperative to forge new trade deals worldwide, and also to make the new EU trade deal work, what incentives are being considered by the Treasury to both attract new companies to the UK and retain those that are already here?
Equitable Life
John Glen Excerpts(3 years, 3 months ago)
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The Economic Secretary to the Treasury (John Glen)
Let me start, as others have done, by acknowledging the role of my hon. Friend the Member for Harrow East (Bob Blackman), his long-standing work on the issue and his success in securing the debate. I also need to declare an interest, as I did when I responded to the debate on 31 January 2019: my late father was an investor in Equitable Life and, therefore, I am keenly aware of the history and the importance of the issue to all concerned.
As we have heard and grasped again today, this is a complex and technical subject, the history of which has been very well documented over many years. I should also remind Members that the Equitable Life payment scheme closed to new claims over five years ago, so nothing has changed since that previous debate two years ago. Many of the speeches made today have covered the long and sad history of this matter. I do not propose to revisit all of that this afternoon. I do, however, want to remind hon. Members that the Government took more action than any of their predecessors to resolve this issue and committed significantly more funding than any other.
I appreciate that some investors remain disappointed by the steps that we took and would like to see further funds made available, but the Government have been clear and consistent in saying that this issue is closed and no further money will be paid out. This is in line with the ombudsman’s report, which was explicit about having no expectation of the full amount being paid.
John Glen
I will not, because of time. Indeed, the ombudsman wrote to the APPG to clarify that position. Today, we have heard additional representations on the transparency and accuracy of the payments made by the scheme. I heard very clearly that point from my right hon. Friend and his reference to me during the debate, and I shall respond to that now.
First, the Treasury published the calculation methodology in full in 2011, as well as a simplified explanation to assist members of the scheme who were anxious about how it would work, with worked examples of the calculation. These explain how every payment made by the scheme was calculated. In addition, the Treasury has also incurred actuarial fees well in excess of £100,000, answering the questions reasonably posed by the actuarial representative of the Equitable Members Action Group, in an effort to ensure that there was maximum transparency to that group and to those members who were concerned, but no errors were found in the methodology. The group confirmed to their members that the payments to annuitants were accurate, and all this was set out in detail to the Public Accounts Committee in 2018.
Some hon. Members have spoken about policyholders who have received increased payments from the scheme, but given the closure of the scheme to new claims, I can only assume that these are historical cases. The Treasury is not aware of any corrected payments having been made to policyholders since the scheme closed, but I recognise that it may be helpful to go into some more detail on this point. The most critical determinant of the value of any payment is the input data received from Equitable itself, including payments in, payments out and the type of policy bought. Actuaries checked this data carefully and made any obvious corrections automatically before payments were made. But then the scheme also gave policyholders the opportunity to verify their own input data, which would be a significant driver of any errors, and where an error was found, the scheme corrected it and recalculated the payment. That is likely to have been what happened in specific cases that Members have raised today, and I believe that they show that the system that the scheme established to ensure accurate payments worked well.
The Government have taken significant action to resolve this issue and to balance the expectations of the policyholder with the needs of the taxpayer. The scheme was fully transparent, as I have set out. We published the calculation methodology in full. We made significant resources available to explain it. And we put systems in place to ensure that where there were errors in that input data and, therefore, payments, they were remedied swiftly. I appreciate investors’ desire that the scheme should pay out more, but the Government’s position has always been clear and consistent, both since the original announcement back in 2010 and since the scheme was wound down over five years ago. I am afraid that that position remains and will not change.
Counter-Terrorist Asset Freezing Regime: 1 July to 30 September 2020
John Glen Excerpts(3 years, 3 months ago)
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The Economic Secretary to the Treasury (John Glen)
Under the Terrorist Asset-Freezing etc. Act 2010 (TAFA 2010), the Treasury is required to prepare a quarterly report regarding its exercise of the powers conferred on it by part 1 of TAFA 2010. This written statement satisfies that requirement for the period 1 July 2020 to 30 September 2020.
This report also covers the UK’s implementation of the UN’s ISIL (Daesh) and al-Qaeda asset-freezing regime (ISIL-AQ), and the operation of the EU’s asset-freezing regime under EU Regulation (EC) 2580/2001 concerning external terrorist threats to the EU—also referred to as the CP 931 regime—for the same period (1 July 2020 to 30 September 2020).
Under the ISIL-AQ asset-freezing regime, the UN has responsibility for designations, and the Treasury, through the Office of Financial Sanctions Implementation (OFSI), has responsibility for licensing and compliance with the regime in the UK under the ISIL (Daesh) and al-Qaeda (Asset-Freezing) Regulations 2011.
Under EU Regulation 2580/2001, the EU has responsibility for designations, and, throughout the transition period while the UK was a member of the EU, OFSI had responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.
EU Regulation (2016/1686) was implemented on 22 September 2016. This permits the EU to make autonomous al-Qaeda and ISIL (Daesh) listings.
UK sanctions following the end of the transition period
Since the transition period ended at 11:00pm on 31 December 2020, the UK no longer applies EU sanctions regulations and all sanctions regimes will be implemented through UK regulations. The Sanctions and Anti-Money Laundering Act 2018 (the Sanctions Act) provides the legal framework for the UK to impose, update and lift sanctions autonomously. Information on the three new counter-terrorism sanctions regimes can be found via this link:
https://www.gov.uk/government/collections/uk-counter-terrorism-sanctions.
These new sanction regimes ensure that the UK implements its international obligations under UN Security Council Resolution 1373 and give effect to the UK’s obligations under UN Security Council Resolution 2368.
There will be a final quarterly report to Parliament on the UK’s Terrorist Asset- Freezing Regime, covering the period 1 October 2020 to 31 December 2020, which will be released in due course.
Attachments can be viewed online at: http://www. parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2021-01-19/HCWS719.
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Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2020
John Glen Excerpts(3 years, 3 months ago)
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The Chair
Before we begin, I remind Members about the social distancing requirements. Spaces available to Members are clearly marked. Hansard colleagues would be grateful if you could send any speaking notes to hansardnotes@parliament.uk. I call the Minister to move the motion.
The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2020.
It is a pleasure to serve under your chairmanship, Mr Mundell, as we consider the order, which was laid before the House on 26 November last year.
At the spring Budget in 2020, following comprehensive consultation and stakeholder engagement, the Government published their consultation response and the Chancellor announced the Government’s intention to legislate to bring pre-paid funeral plan providers within the remit of the Financial Conduct Authority. That will ensure that, for the first time, all providers that sell and administer pre-paid funeral plans will be subject to compulsory and robust regulation. Compulsory regulation in this area is long overdue, and it is right that the Government act to ensure that vulnerable consumers are protected by a coherent and proportionate regulatory regime.
This issue has attracted interest from across the House over a number of years and I thank all Members who have campaigned, spoken and written to me about it in that time, including the hon. Member for Airdrie and Shotts (Neil Gray), the right hon. Member for East Antrim (Sammy Wilson), my hon. Friend the Member for South Cambridgeshire (Anthony Browne), my right hon. Friend the Member for South Holland and The Deepings (Sir John Hayes), and the hon. Member for Bethnal Green and Bow, who is a member of the Committee. The order will introduce a compulsory regulatory regime by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and other related legislation.
A funeral plan is a contract under which a policyholder makes one or more payments to a funeral plan provider, who subsequently provides or pays for a funeral upon the death of the policyholder. Entering into such plans in effect allows policyholders to lock in the price of their future funeral when they purchase the plan. Although there is a voluntary regulatory body in the market, the Funeral Planning Authority, over recent years there have been troubling reports from Fairer Finance and Citizens Advice Scotland of consumer detriment in the sector.
Following those reports, in 2018 the Government launched a call for evidence in order to seek views and information on the potential risk of consumer detriment in the market. The responses to that call for evidence confirmed the existence of consumer harm, which included a lack of clarity for consumers over what is covered by their plan, high- pressure and misleading sales tactics, and a lack of access to redress schemes if things go wrong. The call for evidence also confirmed broad demand in the sector for moving to a compulsory regulatory regime, with 84% of respondents expressing their support.
Following further consultation on a new legislative framework, the Government have decided to bring the pre-paid funeral plan market within the remit of the FCA. That will ensure that funeral plan providers are subject to robust and enforceable conduct standards that aim to protect consumers from further harm. Under the current legislative framework, entering into a funeral plan contract is a regulated activity; however, the 2001 order currently excludes plans covered by a trust arrangement or insurance contract from the definition of a funeral plan.
Because all known providers meet those conditions, no pre-paid funeral plan provider is currently, or ever has been, authorised and regulated by the FCA. The draft order will remove those exclusions, with the effect that providers will generally be required to be authorised by the FCA in relation to entering into—that is, selling—funeral plan contracts. The order will also introduce a new regulated activity that will require providers to be authorised by the FCA in relation to the administration of funeral plans, including existing plans.
Those changes to the 2001 order will ensure that the FCA is able to introduce rules to protect consumers at the point of sale, ensure that providers administer the plans properly, and ensure that they have sufficient reserves to pay for funerals as they fall due. Many funeral plan contracts are sold by smaller intermediaries and in particular by funeral directors, a point made to me yesterday in a letter from my right hon. Friend the Member for South Holland and The Deepings. Failing to capture the sale of funeral plan contracts by that large part of the market would result in an ineffective regulatory regime and expose individuals to the risk of unfair selling practices. Therefore this order also makes amendments to the regulated activities order in order to make dealing in funeral plan contracts as an agent a regulated activity. The effect is that all relevant activities undertaken by intermediaries or third-party distributors who promote or sell funeral plans will also be brought within the scope of the amended regulatory regime.
I am mindful that funeral directors are in general not financial services firms, and the Treasury has received many representations from stakeholders concerned about the ability of these small, often family-run businesses to become directly authorised by the FCA. Therefore this order amends the relevant regulations in order to allow intermediaries of funeral plan providers to become appointed representatives of “principal” firms. That means that funeral plan providers, acting as the “principal” firm, must ensure that the representatives whom they appoint to sell or promote their funeral plans comply with the relevant regulatory regimes. For the Committee’s benefit, I point out that that is not dissimilar to a travel agent selling insurance but not actually being responsible individually for being regulated as an insurance provider. It results in a proportionate approach whereby smaller firms that operate as intermediaries will be required to follow the rules that protect consumers, without necessarily needing to undergo full FCA authorisation.
The order also makes consequential amendments to the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and the Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001.
Finally, the order will bring this sector into the scope of the Financial Ombudsman Service. The Government consider that consumers should have access to the financial ombudsman in respect of both plans purchased after the order comes fully into force and plans that would otherwise have benefited from the complaints procedure of the current voluntary regulator. Accordingly, the order extends the jurisdiction of the financial ombudsman to allow it to deal with complaints in relation to matters that occurred when the funeral plan provider was registered with the Funeral Planning Authority.
I thank the FPA for its work up to this point. I hope that it will continue to operate until the new FCA regime comes into force and I urge providers to retain their registration and, of course, abide by the authority’s code of conduct in this transitional period.
Following consultation with the industry, the Treasury has concluded that the majority of providers operating in this market are well run, with properly funded trusts. That is important, because it provides a foundation on which a proper regulatory regime can be based. The Treasury has also found that the reported poor practices have largely been attributed to providers that had chosen not to register with the FPA, demonstrating that in this case a voluntary system of regulation cannot be fully effective because providers can simply choose not to comply.
It is a regrettable fact that bringing a previously unregulated sector into regulation—whatever form that may take—creates a possibility that some providers are not able to meet the threshold for the new authorisation. I therefore cannot rule out the possibility that, in the authorising of those firms under the new regime, it is revealed that some providers are unable to deliver on the promises that they have made to their customers. However, I can assure the Committee that the Treasury and the FCA will monitor the situation very closely and, subject to the facts at the time, stand ready to take any appropriate action.
I will briefly outline the next steps. Once this order is made, there will be an 18-month implementation period before the new regulatory framework comes fully into force. That will allow time for the FCA to design, consult on and implement the regulatory architecture for the new regime. It will also allow time for funeral plan providers and intermediaries to take the necessary steps to familiarise themselves with the new regulatory requirements.
I also fully expect funeral plans to be brought within the scope of the Financial Services Compensation Scheme, but ultimately the scope of the FSCS is determined by the FCA, which will need to consult on the matter. The Government are currently considering whether further legislation is required to ensure that the compensation scheme would operate effectively for consumers if it were extended to cover this sector.
As I said, compulsory regulation in this area is long overdue. We must ensure that vulnerable and elderly consumers in this sector are protected. I therefore commend this order to the Committee.
John Glen
I am very grateful to the right hon. Gentleman for his thoughtful remarks. I echo his sentiments about the contribution that funeral directors make up and down the country, in very difficult circumstances over the recent period. I understand the trauma that exists out there and it is obviously incredibly challenging to enact regulations that are appropriate but still cause massive distress. He raised a number of substantive points, which I will happily respond to. Obviously, we did not start out seeking to regulate at any cost and without due consultation. I accept that the number of responses was relatively modest, but there was a clear consensus from them.
I acknowledge the points that the right hon. Gentleman made on behalf of the existing voluntary body, the Funeral Planning Authority, which is not in favour of the regulation, but the reality, as I said, is that for many of its members this is not an issue; the issue comes with those that do not choose to register with the FPA and the burden of distress that those firms cause. That is why we are having to act.
The right hon. Gentleman asked about the costs for small firms. I explained the model by which small firms will be able to act as essentially intermediaries in terms of selling these products, and the relationship with the FCA not being a direct one. I accept that the issue about current providers and plans that would, subsequent to the authorisation process, potentially not be authorised, and the attendant consumer detriment, is a legitimate one that we cannot resolve at this point. As I said, it is a matter that the FCA would keep under review. I accept that the issue exists, but that does not mean that we should not tackle the fact that we need to regulate going forward, and we need to regulate for those that have come before.
The right hon. Gentleman asked about FCA resourcing, which is obviously a matter for the FCA to resolve. Notwithstanding the challenges that it faces at different times with different issues, it has a good reputation for doing this sort of work, and we expect to work very closely with it. I have regular conversations—indeed, I will have one today—with the chief executive of the FCA, and I will keep the matter under close review.
I think this is the right thing for the Government to be doing. It is based on evidence, cross-party support and clearly, as matters move forward and the detail of the work and the regulations come into play, there will be an opportunity to debate the measure further in the House.
Question put and agreed to.
Financial Services Bill
John Glen ExcerptsWednesday 13th January 2021
(3 years, 3 months ago)
Commons ChamberRead Full debate Financial Services Bill 2019-21 View all Financial Services Bill 2019-21 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 13 January 2021 - (13 Jan 2021)
The Economic Secretary to the Treasury (John Glen)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 28—Forfeiture of money: electronic money institutions and payment institutions.
New clause 1—Report into standards of conduct and ethics in the financial services industry—
“(1) The Treasury must prepare and publish a report into standards of conduct and ethics of businesses regulated or authorised by the Financial Conduct Authority.
(2) The report must include—
(a) an assessment of the prevalence of unlawful practices in the sector, including—
(i) tax evasion, and
(ii) money laundering;
(b) an assessment of the prevalence of other practices including—
(i) the charging of excessive fees,
(ii) the provision of inadequate advice to customers, and
(iii) tax avoidance;
(c) consideration of the case for the establishment of a public inquiry into standards of conduct and ethics within the UK financial services industry, under the Inquiries Act 2005; and
(d) an assessment of the present arrangements for the regulation of the financial services sector and the Government’s plans for further reform of the regulatory system.
(3) This report must be laid before Parliament within six months of this Act being passed.”
This new clause would require the Government to publish a report into the standards of conduct and ethics of businesses regulated or authorised by the Financial Conduct Authority, including consideration of the case for the establishment of a public inquiry.
New clause 2—Report into anticipated use of the Debt Respite Scheme—
“(1) The Treasury must prepare and publish a report into the anticipated use of the Debt Respite Scheme over the five years following the passing of this Act.
(2) The report must include an assessment of—
(a) the number of people likely to use the Breathing Space scheme
(b) the number of people likely to be offered a Statutory Debt Repayment Plan,
(c) the scale of personal and household debt within the UK economy and the impact of this on use of the Debt Respite Scheme,
(d) the effectiveness of current mechanisms to prevent people having recourse to the Debt Respite Scheme, and
(e) the potential for additional policies and mechanisms to complement the work of the Debt Respite Scheme.
(3) This report must be laid before Parliament within six months of this Act being passed.”
This new clause would require the Treasury to publish a report into the anticipated use of the Debt Respite Scheme, including the effectiveness of the current mechanisms to prevent people having recourse to the Debt Respite Scheme.
New clause 4—Facilitation of economic crime—
“(1) A relevant body commits an offence if it—
(a) facilitates an economic crime; or
(b) fails to take the necessary steps to prevent an economic crime from being committed by a person acting in the capacity of the relevant body.
(2) In subsection (1), a ‘relevant body’ is any person, including a body of persons corporate or unincorporated, authorised by or registered with the Financial Conduct Authority.
(3) In subsection (1), an ‘economic crime’ means—
(a) fraud, as defined in the Fraud Act 2006;
(b) false accounting, as defined in the Theft Act 1968; or
(c) an offence under the following sections of the Proceeds of Crime Act 2002—
(i) section 327 (concealing etc criminal property);
(ii) section 328 (arrangements etc concerning the acquisition, retention, use or control of criminal property); and
(iii) section 329 (acquisition, use and possession of criminal property).
(4) In subsection (1), ‘facilitates an economic crime’ means—
(a) is knowingly concerned in or takes steps with a view to any of the offences in subsection (3); or
(b) aids, abets, counsels or procures the commission of an offence in subsection (3).
(5) In proceedings for an offence under subsection (1), it is a defence for the relevant body to show that—
(a) it had in place such prevention procedures as it was reasonable in all circumstances for it to have in place;
(b) it was not reasonable in the circumstances to expect it to have any prevention procedures in place.
(6) A relevant body guilty of an offence under this section shall be liable—
(a) on conviction on indictment, to a fine;
(b) on summary conviction in England and Wales, to a fine;
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(7) If the offence is proved to have been committed with the consent or connivance of—
(a) a director, manager, secretary or other similar officer of the relevant body, or
(b) a person who was purporting to act in any such capacity,
this person (as well as the relevant body) is guilty of the offence and liable to be proceeded against and punished accordingly.”
This new clause would make it an offence for a relevant body authorised or registered by the Financial Conduct Authority to facilitate, or fail to prevent, specified economic crimes.
New clause 6—Money laundering: electronic money institutions—
‘(1) The Proceeds of Crime Act 2002 is amended as follows.
(2) In section 303Z1 (Application for account freezing order)—
(a) In subsection (1) after “bank” insert “, electronic money institution”
(b) In subsection (6) after “Building Societies Act 1986;” insert—
“‘electronic money institution’ has the same meaning as in the Electronic Money Regulations 2011.”
(3) In section 303Z2 (Restrictions on making of application under section 303Z1), in subsection (3) after “bank” insert “, electronic money institution.”
(4) In section 303Z6 (Restriction on proceedings and remedies), in subsection (1) after “bank” insert “, electronic money institution.”
(5) In section 303Z8 (“The minimum amount”), in subsection (4) after “bank” insert “, electronic money institution.”
(6) In section 303Z9 (“Account forfeiture notice”), in subsection (6)(b) after “bank” insert “, electronic money institution.”
(7) In section 303Z11 (“Lapse of account forfeiture notice”)—
(a) in subsection (6) after “bank” insert “, electronic money institution”
(b) in subsection (7) after “If the bank” insert “, electronic money institution”
(c) in subsection (7) after “on the bank” insert “, electronic money institution.”
(8) In section 303Z14 (“Forfeiture order”), in subsection (7)(a) after “bank” insert “, electronic money institution.”
(9) In section 327 (Concealing etc), after subsection (2C) insert—
“(2D) An electronic money institution that does an act mentioned in paragraph (c) or (d) of subsection (1) does not commit an offence under that subsection if the value of the criminal property concerned is less than the threshold amount determined under section 339A for the act.”
(10) In section 328 (Arrangements), after subsection (5) insert—
“(6) An electronic money institution that does an act mentioned in subsection (1) does not commit an offence under that subsection if the arrangement facilitates the acquisition, retention, use or control of criminal property of a value that is less than the threshold amount determined under section 339A for the act.”
(11) In section 329 (Acquisition, use and possession), after subsection (2C) insert—
“(2D) An electronic money institution that does an act mentioned in subsection (1) does not commit an offence under that subsection if the value of the criminal property concerned is less than the threshold amount determined under section 339A for the act.”
(12) In section 339A (Threshold amounts)—
(a) in subsection (1) leave out “327(2C), 328(5) and 329(2C)” and insert “327(2C), 327(2D), 328(5), 328(6), 329(2C) and 329(2D)”
(b) in subsection (2) after “deposit-taking body” insert “or electronic money institution”
(c) in subsection (3) after “deposit-taking body” insert “or electronic money institution”
(d) in subsection (3)(a) after “deposit-taking body’s” insert “or electronic money institution’s”
(e) in subsection (3)(b) after “deposit-taking body” insert “or electronic money institution”
(f) in subsection (4) after “deposit-taking body” insert “or electronic money institution”
(g) in subsection (8) after “deposit-taking body” insert “or electronic money institution.
(13) In section 340 (Interpretation), after subsection (14) insert—
“(14A) “Electronic money institution” has the same meaning as in the Electronic Money Regulations 2011.”’
This new clause would update definitions in the Proceeds of Crime Act 2002 to reflect the growth of financial technology companies in the UK by equalising the treatment of electronic money institutions with banks in regard to money laundering regulations.
New clause 7—Regulation of buy-now-pay-later firms—
“Within three months of this Act being passed, the Treasury must by statutory regulations make provision for the protection of consumers from unaffordable debt by requiring the FCA to regulate—
(a) buy-now-pay-later credit services, and
(b) other lending services that have non-interest-bearing elements.”
This new clause would bring the non-interest-bearing elements of buy-now-pay-later lending and similar services under the regulatory ambit of the FCA.
New clause 8—European Union regulatory equivalence for UK-based financial services businesses—
“(1) Within three months of this Act being passed, the Treasury must prepare and publish a report on progress towards regulatory equivalence recognition for UK-based financial services firms operating within the European Union.
(2) This report should include—
(a) the status of negotiations towards the recognition of regulatory equivalence for UK financial services firms operating within the European Union;
(b) a statement on areas in where equivalence recognition has been granted to UK based businesses on the same basis as which the UK has granted equivalence recognition to EU based businesses; and
(c) a statement on where such equivalence recognition has not been granted.”
This new clause would require a report to be published on progress towards, or completion of, the equivalence recognition for UK firms which the Government hopes to see following the Chancellor’s statement on EU-based firms operating in the UK.
New clause 9—Debt Respite Scheme: review—
“(1) The Chancellor of the Exchequer must review the impact on debt in parts of the United Kingdom and regions of England of the changes made by section 32 of this Act and lay a report of that review before the House of Commons within six months of the date on which this Act receives Royal Assent.
(2) A review under this section must consider the effects of the changes on debt held by—
(a) households,
(b) individuals with protected characteristic as defined by the Equality Act 2010,
(c) small companies as defined by the Companies Act 2006.
(3) In this section—
‘parts of the United Kingdom’ means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland; and
‘regions of England’ has the same meaning as that used by the Office for National Statistics.”
This new clause would require a review of the impact on debt of the changes made to the Financial Guidance and Claims Act 2018 in section 32.
New clause 10—Legal protections for retail clients against the mis-selling of financial services—
‘(1) Regulation 3 (Private Person) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 is amended as follows.
(2) In paragraph 1(a), after “individual”, insert “, partnership or body corporate that is or would be classified as a retail client”.
(3) In paragraph 1(b), leave out “who is not an individual” and insert “not within the definition of paragraph 1(a)”.
(4) For the purposes of this regulation, a “retail client” means a client who is not a professional client within the meaning set out in Annex II of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.’
This new clause seeks to give retail clients greater legal protections against the mis-selling of financial services products.
New clause 11—Legal protections for small businesses against the mis-selling of financial services—
‘(1) Regulation 3 (Private Person) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 is amended as follows.
(2) In sub-paragraph 1(a), leave out “individual” and insert “relevant person”.
(3) In sub-paragraph 1(b), leave out “individual” and insert “relevant person”.
(4) After paragraph 1, insert—
“(1A) For the purposes of this regulation, a ‘relevant person’ means—
(a) any individual;
(b) any body corporate which meets the qualifying conditions for a small company under sections 382 and 383 Companies Act 2006 in the financial year in which the cause of action arises;
(c) any partnership which would, if it were a body corporate, meet the qualifying conditions for a small company under section 382 Companies Act 2006 in the financial year in which the cause of action arises.”’
This new clause seeks to give small businesses greater legal protections against the mis-selling of financial services products.
New clause 12—Pre-commencement impact assessment of leaving the EU Customs Union—
“(1) No Minister of the Crown or public authority may appoint a day for the commencement of any provision of this Act until a Minister of the Crown has laid before the House of Commons an impact assessment of—
(a) disapplying EU rules; and
(b) applying rules different from those of the EU
as a consequence of any provision of this Act.
(2) A review under this section must consider the effects of the changes on—
(a) business investment,
(b) employment,
(c) productivity,
(d) inflation,
(e) financial stability, and
(f) financial liquidity.
(3) A review under this section must consider the effects in the current and each of the subsequent ten financial years.
(4) The review must also estimate whether these effects are likely to have been different in the following scenarios—
(a) if the UK had left the EU withdrawal transition period without a negotiated comprehensive free trade agreement, or
(b) if the UK had left the EU withdrawal transition period with a negotiated agreement, and remained in the single market and customs union.
(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.
(6) In this section—
‘parts of the United Kingdom’ means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland; and
‘regions of England’ has the same meaning as that used by the Office for National Statistics.”
This new clause would require the Government to produce an impact assessment before disapplying EU rules or applying those different to those of the EU; and comparing such with various scenarios of UK-EU relations.
New clause 13—Review of Impact of Scottish National Investment Bank Powers—
“(1) The Chancellor of the Exchequer must review the effect of the use of the powers in this Act in Scotland and lay a report of that review before the House of Commons within six months of the date on which this Act receives Royal Assent.
(2) A review under this section must consider the effects of the changes on—
(a) business investment,
(b) employment,
(c) productivity,
(d) inflation,
(e) financial stability, and
(f) financial liquidity.
(3) The review must also estimate the effects on the changes in the event of each of the following—
(a) the Scottish Government is given no new financial powers with respect to carrying over reserves between financial years,
(b) the Scottish Government is able to carry over greater reserves between financial years for use by the Scottish National Investment Bank.
(4) The review must under subparagraph 4(b) consider the effect of raising the reserve limit by—
(a) £100 million,
(b) £250 million,
(c) £500 million, and
(d) £1,000 million.”
This new clause requires a review of the impact of providing Scottish Government powers to allow the SNIB to carry over reserves between financial years beyond its current £100m limit.
New clause 14—Application of money laundering regulations to overseas trustees: review of effect on tax revenues—
“(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 31 and lay a report of that review before the House of Commons within six months of the date on which this Act receives Royal Assent.
(2) The review under sub-paragraph (1) must consider—
(a) the expected change in corporation and income tax paid attributable to the provisions in this Schedule; and
(b) an estimate of any change attributable to the provisions of section 31 in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.
(3) The review must under subparagraph (2)(b) consider taxes payable by the owners and employees of Scottish Limited Partnerships.”
This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of section 31, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.
New clause 15—Parliamentary scrutiny of FCA provisions—
“Any provision made by the Financial Conduct Authority under this Act may not be made unless a draft of the provision has been laid before and approved by a resolution of the House of Commons.”
This new clause subjects FCA provisions under this Act to the affirmative scrutiny procedure in the House of Commons.
New clause 16—Scrutiny of FCA Powers by committees—
“(1) No provision may be made by the Financial Conduct Authority under this Act unless the conditions in subsection (2) are satisfied.
(2) The conditions are that—
(a) a new statutory committee comprising Members of the House of Commons has been established to scrutinise financial regulation, and
(b) a new statutory committee comprising Members of the House of Lords has been established to scrutinise financial regulation.
(3) The Treasury must, by regulations, make provision for and about those committees.
(4) Those regulations must provide that the committees have at least as much power as the relevant committees of the European Union.”
This new clause requires statutory financial regulation scrutiny committees to be established before the FCA can make provisions under this Bill.
New clause 17—Review of impact of Act on UK meeting Paris climate change commitments—
“The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting its Paris climate change commitments, and lay it before the House of Commons within six months of the day on which this Act receives Royal Assent.”
This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting its Paris climate change commitments.
New clause 18—Review of impact of Act on UK meeting UN Sustainable Development Goals—
“The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on the UK meeting the UN Sustainable Development Goals, and lay it before the House of Commons within six months of the day on which this Act receives Royal Assent.”
This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting the UN Sustainable Development Goals.
New clause 19—Money laundering and overseas trustees: review—
“(1) The Treasury must, within six months of this Act being passed, prepare, publish and lay before Parliament a report on the effects on money laundering of the provisions in section 31 of this Act.
(2) The report must address—
(a) the anticipated change to the volume of money laundering attributable to the provisions of section 31; and
(b) alleged money laundering involving overseas trusts by the owners and employees of Scottish Limited Partnerships.”
This new clause would require the Treasury to review the effects on money laundering of the provisions in section 31 of this Act, and in particular on the use of overseas trusts for the purposes of money laundering by owners and employees of Scottish Limited Partnerships.
New clause 20—Regulatory divergence from the EU in financial services: Annual review—
“(1) The Treasury must prepare, publish and lay before Parliament an annual review of the impact of regulatory divergence in financial services from the European Union.
(2) Each annual review must consider the estimated impact of regulatory divergence in financial services in the current financial year, and for the ten subsequent financial years, on the following matters—
(a) business investment,
(b) employment,
(c) productivity,
(d) inflation,
(e) financial stability, and
(f) financial liquidity.
in each English region, and in Scotland, Wales and Northern Ireland.
(3) Each report must compare the analysis in subsection (2) to an estimate based on the following hypothetical scenarios—
(a) that the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement;
(b) that the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union;
(c) that the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union; and
(d) that the UK signs a comprehensive free trade agreement with the United States.
(4) The first annual report shall be published no later than 1 July 2021.”
This new clause requires a review of the impact of regulatory divergence from the European Union in financial services, which should make a comparison with various hypothetical trade deal scenarios.
New clause 21—Duty of care specification—
“(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) After Section 1C insert—
‘1CA Duty of care specification
(1) In securing an appropriate degree of protection for consumers, the FCA must ensure authorised persons carrying out regulated activities are acting with a duty of care to all consumers.
(2) Matters the FCA should consider when drafting duty of care rules include, but are not limited to—
(a) the duties of authorised persons to act honestly, fairly and professionally in accordance with the best interest of their consumers;
(b) the duties of authorised persons to manage conflicts of interest fairly, both between themselves and their clients, and between clients;
(c) the extent to which the duties of authorised persons entail an ethical commitment not merely compliance with rules;
(d) that the duties must be owned by senior managers who would be accountable for their individual firm’s approach.’”
This new clause would mean that the FCA would need to ensure that financial services providers are acting with a duty of care to act in the best interests of all consumers.
New clause 22—Extension of the Breathing Space and Mental Health Crisis Moratorium—
‘(1) The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 shall be amended as follows.
(2) In section 1(2), for “4th May 2021” substitute “31st January 2021”.
(3) In section 26(2), for “60 days” substitute “12 months”.’
This new clause would bring forward the start date of the Debt Respite Scheme and extend the duration of the Breathing Space Moratorium from 60 days to 12 months.
New clause 23—Impact of COVID-19 on the Debt Respite Scheme: Ministerial report—
“(1) The Treasury must prepare and publish a report on the impact of the COVID-19 pandemic on the implementation of the Debt Respite Scheme.
(2) The report must include—
(a) a statement on the extent to which changes to levels of household debt caused by the COVID-19 pandemic will affect the usage and operation of the Debt Respite Scheme;
(b) a statement on the resilience of UK households to future pandemics and other financial shocks, and how these would affect the usage and operation of the Debt Respite Scheme; and
(c) consideration of proposals for the incorporation of a no-interest loan scheme into the Debt Respite Scheme for financially vulnerable individuals affected by the COVID-19 pandemic.
(3) The report must be laid before Parliament no later than 28 February 2021.”
This new clause would require the Treasury to publish a report on the impact of the COVID-19 pandemic on the implementation of the Debt Respite Scheme, including consideration of a proposal for the incorporation of a no-interest loan scheme into the Debt Respite Scheme.
New clause 24—Mortgage contracts: regulation of management and ownership—
‘(1) Article 61 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 shall be amended as follows.
(2) After paragraph (2), insert—
“(2A) Managing a regulated mortgage contract is also a specified kind of activity.
(2B) Owning a regulated mortgage contract is also a specified kind of activity.”
(3) For sub-sub-paragraphs (3)(a)(ii) and (3)(a)(iii) substitute—
“(ii) the contract provides for the obligation of the borrower to repay to be secured by a legal mortgage of land (other than timeshare accommodation) in the United Kingdom;
(iii) at least 40% of that land is used, or is intended to be used, as or in connection with a dwelling.”
(4) After sub-paragraph (3)(c), insert—
“(d) ‘managing’ a regulated mortgage contract means having the power to exercise or to control the exercise of any of the rights of a lender under a regulated mortgage contract.
(e) ‘owning’ a regulated mortgage contract means holding the legal title to a regulated mortgage contract or to own beneficially the rights of the lender under a regulated mortgage contract.”
(5) For paragraph (4), substitute—
“(4) For the purposes of sub-paragraph (3)(a)—
(a) ‘mortgage’ includes charge and (in Scotland) a heritable security;
(b) the area of any land which comprises a building or other structure containing two or more storeys is to be taken to be the aggregate of the floor areas of each of those storeys; and
(c) ‘timeshare accommodation’ has the meaning given by section 1 of the Timeshare Act 1992(c).”’
This new clause would require the regulation of the ‘management’ and ‘ownership’ of a regulated mortgage contract.
New clause 25—Standard Variable Rates: Cap on charges for Mortgage Prisoners—
“(7) The FCA must make rules by virtue of subsection (1) in relation to introducing a cap on the interest rates charged to mortgage prisoners in relation to regulated mortgage contracts with a view to securing an appropriate degree of protection for consumers.
(8) In subsection (7) ‘mortgage prisoner’ means a consumer who cannot switch to a different lender because of their characteristics and has a regulated mortgage contract with one of the following type of firms—
(a) inactive lenders: firms authorised for mortgage lending that are no longer lending; and
(b) unregulated entities: firms not authorised for mortgage lending.
(9) The rules made by the FCA under subsection (7) must set the level of the cap on the ‘Standard Variable Rate’ at a level no more than 2 percentage points above the Bank of England base rate.
(10) In subsection (9) ‘Standard Variable Rate’ means the variable rate of interest charged under the regulated mortgage contract after the end of any initial introductory deal.
(11) The FCA must ensure any rules that it is required to make as a result of the amendment made by subsection (7) are made not later than 31st July 2021.”
This new clause would require the FCA to introduce a cap on the Standard Variable Rates charged to consumers who cannot switch to a different lender because of their characteristics and who have a regulated mortgage contract with either an inactive lender or an unregulated entity.
New clause 26—Conditions for the transfer of a regulated mortgage contract—
“(1) A regulated mortgage contract shall not be transferred without the written consent of the borrower.
(2) When seeking consent from either an existing or a new borrower the lender must provide a statement to the borrower containing sufficient information in order for them to make an informed decision.
(3) The statement provided pursuant to subsection (2) must be approved in advance by the Financial Conduct Authority and shall include—
(a) a clear explanation of the implications in terms of the interest rates which will be offered to the borrower including details of the policies and procedures which will apply for the setting of mortgage interest rates and for the making of repayments if the transfer takes place;
(b) how the transfer might affect the borrower;
(c) the name and address of the intended transferee, and of any holding company applicable;
(d) the relationship, if any, between the lender and the transferee;
(e) a description of the intended transferee and of its business, including how long it has been in operation, and details of its involvement in the management of mortgages; and
(f) confirmation that in the absence of a specific consent the existing arrangements will continue to apply.
(4) Each borrower shall be approached individually and shall be given a reasonable time within which to give or decline to give their consent.
(5) In this section, ‘regulated mortgage contract’ has the meaning given by article 61(3) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.”
This new clause would require the written consent of the borrower for the transfer of a regulated mortgage contract and require lenders to provide specified information to borrowers when seeking this consent and for this statement to be approved in advance by the FCA.
New clause 30—Offence of facilitation of or failure to prevent financial crime (No. 2)—
“(1) A financial services company commits an offence if it—
(a) facilitates, aids or abets a relevant offence;
(b) does not take all reasonable steps to prevent the commissioning of a relevant offence.
(2) A financial services company guilty of an offence under this section shall be liable—
(a) on conviction on indictment, to a fine;
(b) on summary conviction in England and Wales, to a fine;
(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.
(3) For the purposes of this section—
‘financial services company’ means any person, including a body of persons corporate or unincorporated, authorised by or registered with the Financial Conduct Authority’;
‘relevant offence’ means—
(a) fraud, as defined in the Fraud Act 2006;
(b) false accounting, as defined in the Theft Act 1968;
(c) any offence under the following sections of the Proceeds of Crime Act 2002;
(d) tax evasion;
(e) an offence under Part 7 of the Financial Services Act 2012; and
(f) insider dealing, as defined in the Criminal Justice Act 1993.”
This new clause would create an offence in cases where financial services companies facilitate or fail to prevent financial crime.
Government amendment 15.
Amendment 13, in clause 33, page 39, line 37, at end insert—
“(c) the successor account must bear, in each financial year, at least the same level of bonus as the mature account before maturation.”
This amendment would ensure customers do not lose any bonus should their funds be moved from a matured account into a new one.
Amendment 14, in clause 33, page 39, line 37, at end insert—
“(7) Regulations under sub-paragraph (2) may only be made if the conditions in sub-paragraph (8) are met.
(8) The conditions referred to in sub-paragraph (7) are—
(a) There must be an account available to any affected customer which provides at least as generous a bonus structure as the matured account.
(b) The customer must have been successfully contacted by a relevant Department or public body.
(c) The customer must have been given full and accessible information on the effects of changing account.”
This amendment would ensure customers are contacted and informed before their funds are transferred.
Amendment 4, in clause 37, page 44, line 9, at end insert—
“(c) after subparagraph (2) insert—
(2A) A person may not be appointed as chief executive under paragraph 2(2)(b) unless they have the consent of the Treasury Committee of the House of Commons.”
This amendment would require a candidate for the position of chief executive of the FCA to receive the consent of the Treasury Committee for their appointment.
Amendment 3, in clause 37, page 44, line 14, at end insert—
“(2C) A person may not be appointed as chief executive under paragraph 2(2)(b) until the Treasury has prepared and published a report on the effectiveness of the FCA under the tenure of the previous chief executive.”
This amendment would require the Treasury to prepare and publish a report on the effectiveness of the previous chief executive in advance of the appointment of a new chief executive.
Government amendments 16 to 21.
Government new schedule 1—Forfeiture of money: electronic money institutions and payment institutions.
Government amendment 22.
Government amendment 23.
Amendment 5, in schedule 2, page 60, line 18, at end insert—
“(f) impose requirements relating to the publication of quarterly statements on portfolio holdings.”
This amendment would allow the FCA to impose requirements on investment firms to publish quarterly statements on their portfolio holdings.
Amendment 6, in schedule 2, page 60, line 18, at end insert—
“(3A) General rules made for the purpose of subsection (1) must impose requirements relating to the publication of quarterly statements on portfolio holdings.”
This amendment would require the FCA to impose requirements on investment firms to publish quarterly statements on their portfolio holdings.
Government amendments 24 to 26.
Amendment 1, in schedule 2, page 63, line 5, at end insert—
“(ba) the target for net UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050 Target Amendment) Order 2019, and”.
Amendment 7, in schedule 2, page 63, line 5, at end insert—
“(ba) the promotion of ethical investments with reference to the judgements of the International Court of Justice or the High Court of England and Wales concerning genocide under Article II of the United Nations Convention on the Prevention and Punishment of the Crime of Genocide, and findings of genocide or ethnic cleansing by a United Nations-mandated investigation.”
This amendment would require the FCA, when making Part 9C rules for investment firms, to have regard to findings of genocide by the courts and UN-mandated investigations.
Amendment 8, in schedule 2, page 63, line 5, at end insert—
“(ba) the likely effect of the rules on trade frictions between the UK and EU, and”.
This amendment would ensure the likely effect of the rules on trade frictions between the UK and EU are considered before Part 9C rules are taken.
Amendment 9, in schedule 2, page 63, line 5, at end insert—
“(ba) the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change, and”.
This amendment would ensure the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change are considered before Part 9C rules are taken.
Amendment 10, in schedule 2, page 79, line 25, after “activities” insert
“in the UK and internationally”.
This amendment would ensure the likely effect of the rules on the relative standing of the United Kingdom as a place for internationally active credit institutions and investment firms to be based or to carry on activities are considered both in terms of their UK and international activities before Part CRR rules are taken.
Amendment 2, in schedule 3, page 79, line 29, at end insert—
“(ca) the target for net UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050 Target Amendment) Order 2019, and”.
Amendment 11, in schedule 3, page 79, line 29, at end insert—
“(ca) the likely effect of the rules on trade frictions between the UK and EU, and”.
This amendment would ensure the likely effect of the rules on trade frictions between the UK and EU are considered before CRR rules are taken.
Amendment 12, in schedule 3, page 79, line 29, at end insert—
“(ca) the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change, and”.
This amendment would ensure the likely effect of the rules on the UK meeting its international and domestic commitments on tackling climate change are considered before CRR rules are taken.
Government amendments 27 to 31.
John Glen
Our financial services sector is critical to our national effort to recover from the impacts of covid-19 and move towards a resilient, open and sustainable future for the UK economy. The Bill is the next step in a process to take back control of our financial services legislation, having left the European Union and come to the end of the transition period.
There are a large number of amendments to address, so I will speak at some length, but hopefully as succinctly as possible. Let me start with the 20 new clauses and amendments tabled in my name, which do four things. I will first address new clauses 27 and 28, new schedule 1 and amendments 16 to 20. I hope that the right hon. Member for Wolverhampton South East (Mr McFadden) will be pleased to see this set of new clauses and amendments, which have been tabled in response to an issue that he raised in Committee.
The Government remain committed to supporting the FinTech sector. The UK is widely considered to be a leading market—probably the leading market—for starting and growing a FinTech firm, and I am proud of that reputation. It has recently become clear that provisions in the Proceeds of Crime Act 2002 are creating challenges for some types of smaller firms known as e-money institutions and payment institutions. These institutions, which include industry leaders such as Revolut, Worldpay and TransferWise, have experienced significant growth over recent years. Currently, they need to submit a defence against money laundering request—which I shall refer to as a DAML from now on—to the National Crime Agency, to seek consent before proceeding with any transaction involving criminal property, however small.
John Glen
I will not on this occasion, if the hon. Gentleman does not mind, because I need to make progress.
In the context that I just outlined, e-money and payment institutions are subject to greater bureaucracy than banks and building societies, which benefit from a £250 threshold amount, under which, in certain circumstances, they do not need to submit a DAML and can proceed with the transaction. E-money and payment institutions must submit a large number of DAML requests for low-value transactions, which are generally of extremely limited use to law enforcement. Processing these requests consumes law enforcement resource, as well as placing a disproportionate burden on these firms, so the amendment equalises the treatment between banks and payment and e-money institutions.
Alongside this change, new clause 28 amends the scope of account freezing and forfeiture powers in the Proceeds of Crime Act and the Anti-terrorism, Crime and Security Act 2001 to include accounts held at payment and e-money institutions. That will ensure that law enforcement are able quickly and effectively to freeze and forfeit the proceeds of crime and terrorist property when held in payment and e-money institution accounts. I hope that, given this, the Opposition will consider withdrawing new clause 6, which has a similar purpose. I am grateful to the right hon. Gentleman for his co-operation on this matter.
Jim Shannon
I want to ask this question because it is very important. We have had tremendous difficulties in Northern Ireland with paramilitaries and money laundering. I am just wondering, in the context of the legislation to which the Minister has just referred and money laundering in particular—we have this in my constituency of Strangford and across the whole of Northern Ireland—what discussions has he had with the police and those in the Northern Ireland Assembly to ensure that loyalist paramilitaries and republican paramilitaries, who are really criminals at the end of the day, are stopped from using that money? Will that be able to be stopped in Northern Ireland if this legislation goes through?
John Glen
I thank the hon. Gentleman for his point. It really does stray beyond the provisions of this particular amendment. He makes an important point, but it is not one that I can address at this point. I would be very happy to write to him to answer his question more appropriately.
I shall now turn to the remaining amendments in my name, which ensure that the powers that the Prudential Regulation Authority and the Financial Conduct Authority have over holding companies function as intended. Amendments 25, 26 and 27 enable the PRA and the FCA to make rules directly over holding companies to void employment contracts and require recovery of remuneration paid to individuals when rules prohibiting them from being paid in a certain way are breached. This is important because, as a result of the measures brought forward in this Bill, responsibility for ensuring compliance with a banking or investment group’s capital requirements is moving from its operating companies to its holding company. This amendment ensures that the regulator can enforce breaches of the rules at the level at which they are set.
Amendments 15, 28, 29, 30 and 31 are a set of relatively small amendments that ensure that the PRA has the full suite of enforcement tools at its disposal for the supervisory regime over holding companies. Amendment 24 is a technical drafting point. Amendments 22 and 23 are clarificatory amendments, which are necessary to ensure that the investment firm’s prudential regime applies to the correct set of firms and does not have extraterritorial effect. I know that this is an important point for my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami). I thank him for his work on this and hope that he will welcome these amendments.
I shall now turn to the other amendments that have been tabled by Members of this House. First, there are a number of amendments that relate to criminality and money laundering. New clause 4 and new clause 30 would create a new criminal offence for FCA-regulated persons of facilitating and of failing to prevent economic crime. This is an important and complex topic, so I will seek to address it in detail.
The Government have taken significant action to improve corporate governance and culture in the financial services industry. We introduced the new senior managers and certification regime, which enables the FCA more easily to take action against the responsible senior manager where there has been a failure in a firm’s financial crime systems and controls. Separately, the Government have recently strengthened the anti-money laundering requirements on financial services firms.
In 2017, the Government issued a call for evidence on whether corporate liability law for economic crime needed to be reformed. Unfortunately, the findings were inconclusive and, as a result, the Government have tasked the Law Commission to conduct an expert review on this issue to report by the end of this year. That will ensure a more comprehensive understanding of any issues with current economic crime law, as well as the implications of any potential options if reform is considered necessary. Before any broader new “failure to prevent” defence for economic crime is introduced, there needs to be strong evidence to support it, as there was when similar bribery and tax evasion offences introduced in 2010 and 2017 respectively took place. A new offence will also need to be designed rigorously, with specific consideration given to how it sits alongside associated criminal and regulatory regimes and to the potential impacts on business.
The proposed new offences in this amendment would lead to a discrepancy in treatment between FCA-regulated businesses and other businesses under criminal law. The 2017 call for evidence did not provide any evidence to suggest financial services businesses should be specifically targeted with a new offence. Indeed, many of the examples provided related to businesses in other sectors.
Kevin Hollinrake (Thirsk and Malton) (Con)
In terms of the corporate offence of failing to prevent economic crime, the Minister asked for evidence on that, but there is a wealth of evidence that the FCA is not holding either corporations or individuals to account for some egregious behaviour, particularly in the banking system and many other parts of corporate life. We are seeing fraud, but £9 billion of fines in the US in a 10-year period and only £260 million in the UK. Is that not proof alone that we need legislation in this area?
John Glen
It is easy to point to headline differences in rates of fines, but it is quite different to intervene with a new piece of legislation that is fit for purpose. That is why I am absolutely clear that the call for evidence this year will gather that evidence—I am sure that my hon. Friend will be keen to submit his evidence to that—and, in due course, we will look at it and examine what the implications are. However, I am not suggesting from the Dispatch Box that everything is perfect with respect to regulation, and of course, there are regulatory failures from time to time and criminal activity. The question is what the most appropriate legislative response is.
I turn to new clause 14, which would add a requirement for the Government to report on the effect of clause 31 on tax revenues. This does not reflect the effect of the provision that we have included in the Bill. The Bill provision merely ensures the continuation of, and the ability to vary in future, the original powers assigned to Her Majesty’s Revenue and Customs with respect to registration of overseas trusts. It does not make any change to taxes.
Similarly, it is not necessary to introduce a report on the impact on money laundering of clause 31, as proposed by new clause 19. Existing legislation already requires the Treasury to carry out a review of its existing provisions within money-laundering regulations and publish a report setting out the conclusions of its review by June 2022. This wider review will provide a more meaningful evaluation than the one envisaged in the amendment.
Amendment 7 raises a very important issue. This amendment would require the FCA to “have regard” to the promotion of ethical investments with reference to findings of genocide by the High Court and the International Court of Justice when making rules for the investment firm prudential regime. While I am extremely sympathetic to the issue raised by Members on both sides of the House, including the hon. Member for Bethnal Green and Bow (Rushanara Ali) and my right hon. Friend the Member for Chingford and Woodford Green (Sir Iain Duncan Smith), this Bill is not the right place to address the issue. This amendment would require the FCA to make political choices about whether to associate itself and its rules with countries that are guilty of genocide or ethnic cleansing. These important decisions on UK foreign policy are for Government to take and not an independent financial services regulator.
I will now address a number of amendments that seek to bring new activities—
Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)
Will the Minister give way?
Sir Iain Duncan Smith
I am glad he gave me time to get this awful mask off.
I understand fully my hon. Friend’s arguments, and I will come to that in a second when I have an opportunity to catch Madam Deputy Speaker’s eye, but on the point he is making, I simply ask him this question: can he conceive that any UK Government would ever authorise trade arrangements on a special basis with any country guilty of genocide?
John Glen
My right hon. Friend has raised this matter in the context of his raising it in a number of other regards with respect to the Trade Bill, and it would obviously be appropriate for my ministerial colleagues in that Department to address it in that context. Today, it is my responsibility to deal with it in the context of financial services regulation, as I think I have done, but I do not want to deny the grave significance of the matter that he is raising, and indeed, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) has raised it with me, too. Obviously, these are complex matters on which others will respond in due course.
I will now address a number of amendments that seek to bring new activities into FCA regulation. New clause 7 relates to “buy now, pay later” products and would require the Treasury to bring those products and other interest-free credit products into the scope of financial services regulation. Those products can play an important role by providing a lower-cost alternative for people making purchases, especially larger items. As an interest-free credit product, “buy now, pay later” is inherently lower-risk than other forms of borrowing, and can be a useful part of the toolkit for managing personal finances and tackling financial exclusion.
Kevin Hollinrake
Yesterday I was looking at a document written by a former lead analyst in that very market—someone who used to work for PIMCO. He very clearly sets out that the proposed change would have a transformational effect on tens of thousands of mortgage prisoners who will not be helped by any other measure that could be put in place. He says quite clearly:
“Introducing an SVR cap on closed, non-lending books would not disrupt the residential mortgage-backed security market”.
That is a direct contradiction of my hon. Friend’s position.
John Glen
Indeed, Martin Lewis, who does some excellent work in this regard and whom I met on this topic recently, looked at this very matter—he commissioned some work from the London School of Economics to look into it—and recommended that we should not take this cap on the SVR. There will always be a variety of views, but I have set out very clearly why I think this is the right position.
Dame Angela Eagle (Wallasey) (Lab)
The Minister is full of reasons, as Treasury Ministers always are, for not accepting amendments or new clauses that people have tabled to solve problems. Does he appreciate the frustration that mortgage prisoners and those who are trying to do something about financial crime feel when they hear Ministers giving us all the technical reasons why things cannot be done but not really proceeding with much alacrity to solve the problems that we raise, albeit not necessarily in the correct format?
John Glen
I am very happy to respond to that. That is why, over the last three years, I have engaged with the problem and worked with the FCA to change the lending criteria so that an estimated 125,000 of the 250,000 mortgage prisoners have been able to switch to more affordable mortgages if they are not taking on lending and are not in arrears. This a complex problem. I am still focused on the 55,000 that we estimate are in that difficult position. I will continue to work with stakeholders and industry representatives to find solutions, working closely with the FCA, but that does not permit me simply to allow any intervention. I did start my remarks with a concession on something that I thought was constructive.
Let me move on to new clause 26, which would require a lender to seek a borrower’s permission before transferring their loan. That would give rise to significant financial stability concerns, especially if a firm was entering liquidation, since it would prevent the timely transfer of the mortgage book. Selling a mortgage book can also represent a sensible way for a lender to manage its balance sheet and does not change the terms or conditions of a borrower’s mortgage contract.
I turn to a number of amendments relating to EU exit and financial services. New clause 12 would require the Treasury to assess the impact of adopting different rules from those of the EU through the Bill. It is right that the UK is able to adopt rules that best suit our own markets. The Government have published an impact assessment alongside the Bill, so the new clause is unnecessary.
Sir Edward Leigh (Gainsborough) (Con)
There is one overseas territory that is intimately connected to the EU: Gibraltar, which values its financial independence. I would just like to use this opportunity—I am sure the Minister will not mind commenting—to reassure the people of Gibraltar that their financial services are absolutely safe under this Government and this Bill.
John Glen
I am very happy to do that. Indeed, the Bill makes provision to ensure that there is ongoing certainty for financial services—particularly the insurance industry, which is so significant to the Gibraltarian economy.
New clause 20 would require the Government to review the cost of divergence from EU rules. I just do not accept that characterisation. Regulatory regimes are not static. There are a lot of myths around this area of divergence. Rules evolve all the time. Where we make changes to our frameworks as they stand today, those will be guided by our continued commitment to the highest international standards and by what is right for the UK’s complex and highly developed markets, to support our world-class environment for doing business. The Bill is the first part of that journey.
New clause 8 would require the Government essentially to report on the status of the EU’s considerations about UK equivalence. That is an autonomous process for the EU, and therefore that is not something that the Government can agree to do. The Chancellor recently announced a package of equivalence decisions—17 decisions out of the 30 that we had to make for the EU—and I will keep the House updated on the UK’s approach to equivalence, just as I did throughout the transition period.
I turn to new clauses 15 and 16, and amendments 3 and 4, which relate to how the regulators’ actions under the Bill will be scrutinised by Parliament. The UK’s regulators are internationally renowned as leaders in financial services regulation, and the Government believe that it is right that powers to implement often highly complex rules are delegated to the bodies with the appropriate technical expertise.
The FCA is already accountable to the Treasury, Parliament and the public. There is a statutory requirement for the FCA’s annual report and accounts for the financial year to be laid before Parliament by the Treasury, and a requirement to hold an annual public meeting at which the annual report can be discussed. There is currently nothing preventing a Select Committee of either House from reviewing the activities of the FCA at an inquiry, taking evidence, calling witnesses and reporting with recommendations. The Treasury recently published a consultation document on the review into the future regulatory framework for financial services, which seeks to achieve the right split of responsibilities between Parliament, Government and the regulators, now that we have left the EU. That is a significant undertaking that we must get right, and I look forward to continuing to engage with Members as part of that review.
I have spoken at length about a number of topics that are not directly addressed in the Bill. I will now address amendments relating to some of the measures that make up the Bill itself. I have already said that the prudential measures contain accountability frameworks, and I will begin by addressing a number of amendments that seek to add additional elements to that framework. As I said to the Public Bill Committee, amendments 1 and 2, along with amendments 9 and 12, all add considerations relating to climate change to the accountability frameworks. They are not necessary, as the Bill grants the Treasury a power to specify further matters to the accountability framework at a later date. I can assure Members across the House that the Treasury will carefully consider adding climate change as an issue to which the regulator should have regard, in the future. However, any such addition needs careful consideration and consultation on how it can be best framed. Therefore, the Government cannot support these amendments.
Amendments 8 and 11 would require the FCA and the PRA to have regard to the impact of their prudential rules on frictionless trade with the EU. Similarly, amendment 10 would require the PRA to have regard to the UK’s relative standing when making rules on capital requirements. These amendments are unnecessary. The accountability framework introduced by the Bill already requires the regulators to consider the impact of their rules on financial services equivalence. That is the main mechanism for financial services relationships between the UK and all overseas jurisdictions, not only the EU, and the Bill already requires the PRA to consider the UK’s standing in relation to other countries and territories.
Amendments 13 and 14 relate to the Help to Save scheme. We expect the majority of account holders to make an active decision about where they want to transfer their money where their accounts mature. However, I recognise that some individuals will become disengaged from their accounts, and before I turn to the specific amendments, I want to update the House on the Government’s plans for supporting these disengaged customers. Successor accounts, which are enabled by this clause, are one of the options that have been under consideration. Having carefully assessed the options, the Government have decided not to use the power provided by this clause at this point. This is primarily because of the operational issues, which mean that we would not be able to guarantee that every customer would be able to have a successor account opened for them automatically. I was therefore unable to conclude that this approach represented value for money. Instead, the Government propose to support customers who do not provide specific instructions for the transfer of their money, by ensuring that they receive their funds into their nominated bank account—the account into which they already receive their bonus payments. If the bonus payments are paid into that account, the principal amount will revert to that account. This will ensure that disengaged customers will be reunited with their savings and bonus payments.
Amendments 13 and 14 would, in effect, extend the four-year term of the Help to Save scheme by providing a guaranteed bonus for the successor account. The aim of Help to Save is to kick-start a regular long-term savings habit and encourage people to continue to save via mainstream savings accounts. The Government’s view is that a four-year Help to Save period is sufficient to achieve this objective. Amendment 14 also seeks to mandate the contacting of customers regarding the transfer of balances to a successor account. This amendment is unnecessary, as all customers will be contacted ahead of their accounts maturing, to encourage them to engage with their accounts and to provide instructions on where to transfer their funds.
New clause 2 would require the Treasury to publish a report on the anticipated use of the debt respite scheme. The expected demand and take-up of both elements of the debt respite scheme have been quantified to the extent possible at this stage and published in the appropriate impact assessments. I share right hon. and hon. Members’ determination that these schemes should work for those who need them. The Government will of course closely monitor both schemes’ usage and consider the impacts of covid-19 and the wider economic recovery on them. I am afraid that producing a report within six months evaluating the impact of changes made by clause 32 on levels of debt across the UK, as proposed by new clause 9, is not possible, as the regulations establishing a statutory debt repayment plan are unlikely to have been made and implemented by that point. I can assure Members that the Government are committed to properly evaluating both the statutory debt repayment plan and the breathing space after their commencement.
Mr Deputy Speaker (Mr Nigel Evans)
Apologies to those who failed to get in because of time constraint. I call the Minister.
John Glen
Thank you, Mr Deputy Speaker; and I thank all Members who have tabled amendments and spoken to them today. The Bill deals with a number of important issues, and this has been reflected in the wide-ranging contributions that we have heard today and over the last couple of months at various stages. I will take this opportunity to add to my earlier remarks and respond to some of the points raised in the contributions this afternoon.
On economic crime, I have already set out a number of actions that the Government have taken. On the specific issue of whether corporate criminal liability law should be reformed, the Law Commission is undertaking an expert review and we should await its outcome, but I note the range of views expressed today. We have discussed amendments that would bring additional activities into FCA regulation, including “buy now, pay later” products. I have heard the points raised on this matter today, particularly by my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard), who gave a sensible, thoughtful and constructive analysis, but I believe that it is right to wait for the Woolard review.
On the question of equivalence and divergence, I have said before that there are some areas where the UK will want to take a different approach from the EU to better suit the UK market, and some areas where we will not. I do not accept the characterisation of divergence. Regulatory regimes are not static—they evolve—and it is right that regulators should adapt to them. We have heard about the relationship between the regulators, the Treasury and Parliament. Again, I look forward to continuing these conversations through the future regulatory framework review, which will be ongoing in the coming weeks and months.
We have discussed several amendments that would require the regulators to have regard to different objectives when implementing the prudential regimes provided for in the Bill. It is right that the regulators set the detailed rules implementing these regimes, as they have the right technical expertise. That has long been a principle by which our regulators have worked over the past 20 years. These regimes are vital, but I do not believe that regulators should be required to have regard to broader questions that are not so closely related to prudential standards.
Several of today’s amendments relate to issues not included in the Bill. I emphasise to the House once again that the Bill is just one part of the wider long- term strategy for financial services that will ensure that the UK financial services industry continues to be a global leader.
As is traditional at this stage of the Bill’s passage, I would like to take this opportunity to thank those who have contributed to its development and scrutiny. In particular, I thank the right hon. Member for Wolverhampton South East (Mr McFadden) and the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) on the Opposition Front Bench, as well as the hon. Members for Glasgow Central (Alison Thewliss) and for Aberdeen South (Stephen Flynn), for the care and attention that they have brought to scrutinising the Bill and the constructive way in which they have approached it. I thank the Public Bill Committee for its detailed engagement with the legislation, particularly the Chairs, my hon. Friend the Member for Shipley (Philip Davies) and the hon. Member for Ealing Central and Acton (Dr Huq).
The hon. Members for Walthamstow (Stella Creasy) and for Wallasey (Dame Angela Eagle) have provided thorough examination and important contributions on parts of the Bill, as has just been seen, and I congratulate the hon. Member for Wallasey on the recognition of her services to Parliament over nearly 29 years in the new year honours list. On this side of the House, my hon. Friends the Members for Basildon and Billericay (Mr Baron), for Bromley and Chislehurst (Sir Robert Neill) and for Hitchin and Harpenden (Bim Afolami), and others, have provided characteristically thorough and thoughtful contributions.
I am grateful to the many experts who gave evidence to the Committee, and I thank the Commons staff and Clerks, Kevin and Nick, who have managed the process so smoothly. Not least, I thank the Treasury officials, Alex Patel, Liz Cronin, Fred Newman, Catherine McCloskey and Tim Garbutt. I hope the House has found my—
Mr Deputy Speaker (Mr Nigel Evans)
Order. I am sorry to interrupt the Minister; I know he wanted to thank more people, but we will have to take that as read, because under the Order of the House of 9 November 2020 I must now put the Questions necessary to bring proceedings on consideration to a conclusion.
John Glen
I beg to move, That the Bill be now read the Third time.
I would like to build on what I was saying previously and thank all Members for their examination of this legislation since it was introduced in October. The thoroughness with which right hon. and hon. Members have undertaken this task only serves to underline the significance of the measures included within the Bill and the importance to the UK of the financial services industry.
As I set out on Second Reading, the financial services sector is fundamental to the UK’s economic strength. It contributed nearly £76 billion in tax receipts last year and it supports jobs across the country, two thirds of which are outside London, as well as providing vital services to people and businesses across the United Kingdom.
The Bill represents a key part of our wider approach to financial services regulation now that we have left the EU. Since its introduction, Members have clearly outlined their expectations that the UK maintains its position as a leading centre of global financial services, while also maintaining high regulatory standards and ensuring that the sector serves the needs of the people and businesses of the United Kingdom. I believe that this Bill will make an important contribution to that goal.
Let me briefly reiterate the three themes of the Bill. First, the Bill enhances the UK’s world-leading prudential standards and promotes financial stability through the implementation of a new tailored prudential regime for investment firms and through enabling the implementation of the Basel III standards. The Bill will also ensure that the FCA has appropriate powers to manage an orderly transition away from the LIBOR benchmark, providing stability and clarity to financial markets.
Secondly, the Bill promotes openness between the UK and international markets by simplifying the process for marketing overseas investment funds in the UK and by delivering on our commitment to provide long-term access between the UK and Gibraltar for financial services firms.
Finally, the Bill supports the maintenance of an effective financial services regulatory framework and sound capital markets. It does this through a range of measures, such as improving the functioning of the packaged retail and insurance-based investment products regulation and increasing penalties for market abuse.
As I said earlier, this is an important Bill. It is also a very technical one, so let me once more thank hon. Members for their valuable and insightful contributions to the scrutiny of this Bill at each stage of its passage. As I indicated earlier, it is important to note that this Bill marks the beginning of a process. It represents a necessary first step towards maintaining high standards and protecting financial stability now that we have left the European Union and the transition period has ended. The Bill is also a foundation for our wider vision for financial services in this country, as the Chancellor set out to this House in his speech on 9 November 2020.
Much of the future of UK financial services regulation will be the continuation of work we led while we were a member of the EU, and I reaffirm this Government’s commitment to the highest internationally agreed standards, which we recognise as a cornerstone of the industry’s reputation and success.
Although we remain committed to those standards, it is important to acknowledge that there are areas in which we will forge our own path and establish an approach better suited to the unique nature of the UK market. Having left and reached an agreement with the EU on the nature of our future relationship, the UK must now have the confidence to regulate our financial services sector in a way that works for us and best meets our needs and our constituents’ needs.
This Bill provides continuity and certainty to the UK financial services sector, demonstrating to it that the UK remains an attractive and stable environment for its global business.
Financial Services Update
John Glen Excerpts(3 years, 4 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Economic Secretary to the Treasury (John Glen)
On 24 November, in a written ministerial statement (WMS) (HCWS595), I committed to working with the Financial Conduct Authority (FCA) to lay before Parliament and publish online before the December recess Dame Elizabeth Gloster’s report into the FCA’s regulation and supervision of London Capital and Finance plc (LCF) and the FCA’s response.
This WMS provides an update on the investigation, the FCA’s response and the Government’s response. Pursuant to Section 82 of the Financial Services Act 2012, the report into the independent investigation, the FCA’s response and a statement of reasons for withholding any material have been laid in the House today.
LCF was an FCA-authorised firm that primarily offered an unregulated investment product—commonly known as mini-bonds—to retail consumers. It entered administration in January 2019, impacting 11,625 people who invested around £237 million.
The Serious Fraud Office and FCA enforcement have launched an investigation into individuals associated with LCF. The Financial Reporting Council has also launched investigations into the audits of LCF.
I know that this has been a very difficult time for LCF bondholders. For some, this will have formed part of an investment portfolio, but for others, it will have represented a significant portion of their savings.
In May 2019, I directed the FCA to launch an independent investigation into the events relating to the FCA’s regulation and supervision of LCF. To lead the investigation, I approved the appointment of Dame Elizabeth Gloster, who has had a distinguished career as a barrister and as a judge, in the High Court and the Court of Appeal.
On 23 November 2020, Dame Elizabeth delivered her report to the FCA. It concludes that the FCA did not effectively supervise and regulate LCF during the relevant period. She makes nine recommendations for the FCA, focusing on how they should improve their internal authorisation and supervision processes. The Government welcome the FCA’s apology to LCF bondholders and their commitment to implement all of Dame Elizabeth’s recommendations.
Dame Elizabeth also makes four recommendations for HM Treasury regarding the regulatory regime, which we accept in full.
First, Dame Elizabeth rightly recognises the challenges the FCA faces in regulating almost 60,000 firms and recommends that the Treasury should consider the optimal scope of the FCA’s remit. The Government agree that they need to consider whether this scope is manageable, but it would be premature to do so before the ongoing FCA transformation programme has been delivered. I have discussed this reform programme with the Chair and Chief Executive and I am convinced it is the best means to address the recommendations. I have today exchanged letters with Mr Rathi agreeing that he will provide regular updates on the progress of these vital reforms.
Secondly, with regard to the regulation of mini-bonds, in May 2019 I announced that the Treasury would review the regulation of non-transferable debt securities. The FCA have also banned the promotion of high-risk “speculative illiquid securities”—including some of the riskiest “mini-bonds”—to ordinary retail consumers. Building on this work, and in light of Dame Elizabeth’s report, the Treasury will launch a consultation in the new year on the regulation of non-transferable debt securities.
Thirdly, Dame Elizabeth raises concerns about a potential gap in responsibilities between Her Majesty’s Revenue and Customs (HMRC) and the FCA in relation to the innovative finance ISA (IF ISA) products.
The FCA is making improvements to its oversight of financial promotions and, with HMRC, the Treasury is urgently looking at the sufficiency of checks on IF ISA managers and at the penalties regime. To improve communication and intelligence sharing, the FCA and HMRC are working to update their memorandum of understanding, and will set up an ISA intelligence working group. Reflecting the findings in Dame Elizabeth’s report, the Treasury will also look at how understanding of the ISA wrapper could be increased so that consumers recognise that, as with any investment, there can be risks as well as possible rewards.
Finally, Dame Elizabeth notes the challenges that increased financial activity online poses for regulation. The FCA already has powers to take a variety of enforcement action against firms that carry out fraudulent activity. Nevertheless, the Treasury will continue to keep the legislative framework under review. As part of this, the Treasury is working with the FCA to consider whether paid-for advertising on online platforms should be brought into the scope of the financial promotions regime. The Treasury is also working with the Department for Digital, Culture, Media and Sport to ensure that fraudulent online advertising is addressed as a priority harm through its online advertising programme.
It is important to acknowledge again that LCF’s failure had a significant impact on the bondholders who have lost their hard-earned savings. There are several ongoing, interlinked processes addressing the reasons for the failure of LCF and seeking to recover bondholders’ investments. The three main channels through which bondholders can seek compensation are:
First, LCF’s administrators are pursuing legal action to recover money. This process is ongoing, but is not expected to recover bondholders’ investments in full, with the current estimate being that recoveries will be as low as 25% of a bondholder’s investment.
Secondly, the financial services compensation scheme (FSCS) has carried out extensive investigations to determine whether LCF bondholders were eligible for FSCS compensation, and it has since compensated 159 bondholders who transferred out of stocks and shares ISAs to LCF bonds. The FSCS is also continuing to issue decisions to LCF bondholders who may have received misleading advice and it will provide an update in the new year. These activities—arranging transfers and advising on investments—are regulated activities and therefore eligible for compensation. In total, as of the start of December, the FSCS has paid out just over £50.9 million in compensation to 2,584 LCF bondholders. There is also an ongoing legal process, with a hearing scheduled for 19 January, which may further affect eligibility for FSCS coverage.
Lastly, the FCA will consider claims for compensation from LCF bondholders through their complaints scheme, which is available to bondholders who believe they have suffered financial loss as a result of actions or inactions of the FCA.
The Government recognise that LCF’s failure and the loss of investment has had a significant and distressing impact on LCF’s bondholders. With any investment there is a risk that, sometimes, investors will lose money. The purpose of regulation is to ensure that investors have the right information to understand their risk. Within this system, even the best regulators, doing everything right, will not be able to, and should not be expected to, ensure a zero-failure regime.
And the Government cannot, and should not be expected to, step in to compensate for every failure and every loss.
But it is clear in the case of LCF that there are multiple, complex reasons why people lost money. And the Government recognise that there is likely to be some variation in how much of their investment bondholders are able to recover through these processes.
The Government therefore announce that, taking into consideration the specific and complex set of circumstances surrounding the collapse of LCF, the Treasury will set up a compensation scheme for LCF bondholders. The scheme will assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders.
I will provide a further update in the new year with more detail on the Government’s approach.
I would like to reiterate my sympathy for LCF bondholders and my commitment to act on Dame Elizabeth’s recommendations, to ensure that our regulatory system maintains the trust of the consumers it is there to protect.
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Bilateral Loan to Ireland
John Glen Excerpts(3 years, 4 months ago)
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The Economic Secretary to the Treasury (John Glen)
I would like to update Parliament on the loan to Ireland.
In December 2010, the UK agreed to provide a bilateral loan of £3.2 billion as part of a €67.5 billion international assistance package for Ireland. The loan was disbursed in eight tranches. The final tranche was drawn down on 26 September 2013. Ireland has made interest payments on the loan every six months since the first disbursement.
On 7 December, in line with the agreed repayment schedule, HM Treasury received a total payment of £407,852,313.75 from Ireland. This comprises the repayment of £403,370,000 in principal and £4,482,313.75 in accrued interest.
In October, as required under the Loans to Ireland Act 2010, HM Treasury provided the latest statutory report to Parliament covering the period from 1 April to 30 September 2020. The report set out details of future payments up to the final repayment on 26 March 2021. The Government continue to expect the loan to be repaid in full and on time. The next statutory report will cover the period from 1 October 2020 to 31 March 2021. HM Treasury will report fully on all repayments received during this period in the report.
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