Financial Conduct Authority Investigation: London Capital and Finance
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I have today laid a direction before Parliament requiring the Financial Conduct Authority (FCA) to carry out an independent investigation into the events and circumstances surrounding the failure and placing into administration of London Capital & Finance Plc (LCF), using powers under Sections 77 and 78 of the Financial Services Act 2012.
Following a request from the FCA, I announced on 1 April the Government’s intention to direct the FCA to launch an investigation into the events at LCF and the circumstances surrounding them. Today’s direction orders this investigation and sets out the terms on which it will be carried out.
The direction requires the FCA to appoint an independent person to carry out the investigation on its behalf, with the approval of HM Treasury. I have approved the FCA’s appointment of Dame Elizabeth Gloster to carry out the investigation on its behalf. The investigation is expected to run for 12 months.
The investigation will look at the actions, policies and approach of the FCA, as the institution with statutory responsibility for the authorisation and supervision of LCF during the relevant period. It will focus on whether the FCA discharged its functions in a manner which enabled it to effectively fulfil its statutory objectives, and may consider any other matter deemed relevant for this purpose.
This independent investigation is separate to the investigation by the Serious Fraud Office, working in conjunction with the FCA, into individuals associated with LCF.
I have also announced today that, alongside this independent investigation, the Government will separately review the wider policy questions raised by the case. This will include research into the wider market for non-transferable securities, such as mini bonds, and their role in the economy. The Treasury will begin work alongside this to consider the regulatory arrangements currently in place for the issuance of these investments, including the financial promotions order which governs the marketing of those products.
The Government are committed to creating a stronger and safer financial system. The independent investigation into the supervision of LCF will ensure that the events and circumstances surrounding the collapse of LCF are better understood. Its findings will help to properly protect those who invest their money in the future.
Copies of the direction are available in the Vote Office and Printed Paper Office.
[HCWS1584]
Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
I beg to move,
That the Committee has considered the draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019.
It is a pleasure to serve under your chairmanship, Mr Robertson. As the Committee will be aware, the Treasury has been undertaking a programme of legislation through statutory instruments introduced under the European Union (Withdrawal) Act 2018 to ensure that if the UK leaves the EU without a deal or an implementation period, there will continue to be a functioning legislative and regulatory regime for financial services in the UK. The SIs made before 29 March covered all the essential legislative changes that needed to be in law by exit to ensure a safe and operable regime at the point of exit. Although the deficiency fixes in the draft regulations are important, it was not essential for them to be in law at exit, so long as they could be made shortly afterwards.
The draft regulations will help to ensure that the UK regulatory regime continues to be prepared for withdrawal from the EU. They are aligned with the approach that we have taken in previous SIs laid under the 2018 Act: providing continuity by maintaining existing legislation at the point of exit, but amending it where necessary to ensure that it works effectively in a no-deal context.
Let me turn to the substance of the draft instrument, which has four components. First, an important aspect of our no-deal preparations is the temporary permissions regime, which enables European economic area firms that operate in the UK via a financial services passport to carry on their UK business after exit day while they seek to become fully UK-authorised. We have also introduced a run-off mechanism—via the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, which were made on 28 February—for EEA firms that do not enter the temporary permissions regime or that leave it without full UK authorisation.
The draft regulations will not amend the design of those regimes, but they will introduce an additional safeguard for UK customers of firms that enter the run-off mechanism: an obligation for firms that enter the contractual run-off regime, which is part of the run-off mechanism established by the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations, to inform their UK customers of their status as an exempt firm and of any changes to consumer protection. That will ensure that EEA providers must inform their UK customers if, for example, there are changes to consumer protection legislation in the firm’s home state or in the EEA that affect UK customers. Part 3 of the draft regulations will introduce similar obligations for electronic money and payment services firms in the contractual run-off regime.
The second key component of the draft regulations concerns the post-exit approach to supervision of financial conglomerates. An EU exit instrument was made on 14 November 2018 to fix deficiencies in FICOR—the Financial Conglomerates and Other Financial Groups Regulations 2004, which implemented the financial conglomerates directive in the UK. As part of an EU exit instrument made on 22 March 2019 to amend the Financial Services and Markets Act 2000, Parliament approved a temporary transitional power to give UK regulators the flexibility to phase in regulatory changes introduced by EU exit legislation.
As part of their work to apply that power, the regulators proposed that, in certain circumstances, changes to the supervision of financial conglomerates should be delayed to give affected firms time to reach compliance in an orderly way. To achieve that, a transitional arrangement needs to be provided in relation to FICOR in respect of the obligations on the regulators to supervise financial conglomerates.
The draft regulations make a clarificatory amendment to the Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018. The drafting approach taken in the 2018 regulations resulted in the Financial Conduct Authority having only the implicit power to cancel the temporary deemed registration or authorisation of an EEA payment institution or account information service provider that provides account information services without the required insurance cover; the draft regulations will make that cancellation criterion explicit.
Let me address the corrections that the draft regulations will make to earlier EU exit SIs. All the legislation laid under the 2018 Act has gone through the normal rigorous checking procedures, but, as with any legislation, errors are made from time to time and it is important that they are corrected.
In the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations, certain provisions relating to run-off regimes incorrectly referred to EEA fund managers. Those references are now removed, as EEA fund managers will not be able to make use of the regimes.
In the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019, which were made on 20 January, references to European long-term investment funds were not fully replaced with the term that will be used for UK long-term investment funds. In the Capital Requirements (Amendment) (EU Exit) Regulations 2018, which were made on 19 December 2018, a redundant paragraph on EU member state flexibility in the delegated regulation on liquidity coverage was not deleted as it should have been. This statutory instrument corrects those errors.
The Treasury has worked closely with the financial services regulators in the drafting of EU exit instruments that the instrument amends. We have also engaged extensively with the financial services industry on the instruments to which this SI relates.
David Hanson (Delyn) (Lab)
Before the Minister says “finally”, will he clarify one point in the explanatory memorandum? Paragraph 7.6 states that
“If the UK were to leave the EU without a deal, the UK would be outside the EU’s framework for financial services. The UK’s position in relation to the EU would be determined by the default Member State and EU rules that apply to third countries at the relevant time. The European Commission has confirmed that this would be the case.”
What does that actually mean in practice?
David Hanson
The current Prime Minister—it is quarter to 3, and I think she is still in post—has indicated that she does not want a no-deal scenario. The next Prime Minister, whoever he or she may be, may well run the clock down until 31 October, when there would be a no-deal scenario. Before the Minister sits down, will he clarify what paragraph 7.6 of the explanatory memorandum means in practice if a no-deal scenario comes to pass?
John Glen
Like any Minister at any point in time, I can speak only for the Government I represent at this moment in time. The assumption behind the right hon. Gentleman’s question is one that I cannot take on board, because that is a hypothetical scenario that I am not, at the moment, privileged to answer.
David Hanson
If the assumption is hypothetical, why is paragraph 7.6 in the explanatory memorandum?
John Glen
As has been indicated throughout the process, the explanatory memorandums set out the situation in the event of a no deal. The right hon. Gentleman wants me to explain where we will be at a certain point in time, but I am not able to answer him at this point.
Finally, during the debate on this instrument in the other place, Lord Young committed the Treasury to reviewing the explanatory memorandum for this instrument. Although the original was factually correct and followed the guidance issued to Government Departments for the drafting of EU exit instrument explanatory memorandums, I accept that it could have provided a clearer and more accessible explanation of the provisions in the instrument, which is why I submitted a revised version of the explanatory memorandum to Parliament on Thursday 16 May.
As I explained in my opening remarks, it was not essential for the additional measures and corrections, including this instrument, to be in law by the original proposed exit day of 29 March. That is why the instrument was not considered earlier by the Committee. Now that the article 50 process has been extended by six months, we can ensure that the provisions are in place and that the UK’s regulatory regime will continue to be prepared for withdrawal from the EU in all scenarios. I hope that colleagues will join me in supporting the regulations, which I commend to the Committee.
John Glen
I am grateful for the points that Members have raised, which I will be happy to go through. The additional measures and corrections in the instrument will help to ensure that the UK’s financial services regulatory regime continues to be prepared for withdrawal from the EU in any scenario, but I recognise the context of the multiple debates we have had and the concerns expressed by multiple Members on the process that has got us to this point and how it needs further elucidation, which I will try to do now. I start by saying that we have used the provisions in the legislation and that the changes did not impact materially on any meaning of thousands of pages of legislation. We always intended and expected that this mechanism would be required in the context of that volume of SIs.
I will now try to give some more detail. In a no-deal scenario, for which any responsible Government must be prepared, EU law and regulators will not have jurisdiction in the UK, so any relevant functions will be taken on by UK authorities and UK law will apply. The hon. Member for Oxford East made reference to Andrew Bailey’s recent comments on deregulation. It is important to contextualise that the European Union (Withdrawal) Act 2018 does not give the Government power to make policy changes beyond those needed to address deficiencies arising as a result of exit.
The hon. Lady tempts me to enter into a wider discussion of the future of regulation.
All I will say on that is that I do not believe that enduring competitive advantage can be or will be achieved in any jurisdiction by deregulation. It means for the UK at the moment that, as far as possible, the same rules that apply pre-exit will apply immediately post-exit. However, it is necessary to make changes to reflect the new third-country relationship between the UK and the EU, and to transfer functions currently carried out by the EU bodies to the appropriate UK body, in the context of this provision of a no-deal scenario.
Our onshore regime will be safe and workable until we have the opportunity to consider long-term reforms to our regulatory framework. The hon. Members for Glasgow Central and for Oxford East make a fair point about the clarity of that long-term arrangement. It obviously needs urgent work by the Government to establish that.
Alison Thewliss
The Minister says that it will need “urgent work”. When will that “urgent work” be done?
John Glen
We are talking about urgent work in the context of no deal, which is not the current Government’s policy. There are so many hypotheticals there that I cannot give the hon. Lady an answer to that question, because it would be dependent on the attitude of the EU to us. So there are a number of unknown issues there.
The issue of the Keeling schedule has come up several times; it was raised by the hon. Member for Oxford East. It is not normal practice for the Government to provide consolidated texts for secondary legislation debates, and changes to legislation are set out in the explanatory memorandum that accompanies the legislative text. My understanding is that the Keeling schedule was essentially an effort to assist and facilitate understanding, but it proved to be quite an unedifying means of doing so, because it just created more confusion given the complexity of the work. So it was not that there was wilful intent to obscure; it was just that the Keeling schedule was not an edifying mechanism to use in itself.
We have published drafts of legislation online in advance of laying them before Parliament, and we have provided links to all laid and made legislation on the same website. So we have tried to make the legislation easily accessible, so that it can be found in one place. I will just also note that the National Archives will publish an online collection of documents capturing the full body of EU law as it stands on exit day, and it will gradually incorporate and retain direct EU legislation into the Government’s official legislation website, which will include a timeline of changes to retained EU law, both pre-exit and post-exit.
The hon. Lady asked—I think others did, too—why these drafting mistakes were not spotted earlier and how can we trust the quality of other EU exit SIs. As I said in my speech, they passed through the usual quality control procedures and we have engaged extensively with the regulators. We have also published EU exit SIs in draft in advance of laying them, for industry to familiarise itself with the legislation.
All I can say is to repeat what I said before—these drafting errors do occur from time to time. I hesitate to say this, but I think that they would happen under all Governments. Obviously, however, if the Opposition are making the case that they would be perfect, then that is potentially for the future to see. [Interruption.] I do not intend to give them a chance, no. [Laughter.]
The hon. Lady went on to ask why such errors were not made in earlier instruments. The Government made a clear commitment to ensure that a fully functioning regulatory regime for financial services would be in place in time; it was. However, we delivered that via a programme of SIs, which ensured that those legislative changes were made by 29 March. These are not essential but desirable things to correct, but the additional measures provided for in this SI will nevertheless help to ensure that the UK regime continues to be prepared for withdrawal from the EU in all scenarios.
We have gone over the issue of the resourcing of the FCA multiple times, but there are no new functions transferred to regulators as a result of this SI. The business plan of the FCA is sufficient for the resources that it has. I have frequent meetings with Andrew Bailey, the chief executive of the FCA, and his colleagues. Andrew Bailey has said that he expects to hold FCA’s fees steady for a year or two, assuming there is an implementation period. However, the FCA can increase its fees should it need to, without reference to Government.
I have already addressed the point made by the hon. Member for Glasgow Central about the further errors. I can only apologise. We published the instruments in draft in advance, and errors happen from time to time. I am not relaxed about that. When fine colleagues from the Treasury come to see me and point them out to me, they get a smile, but it is not the easiest conversation. However, these things happen.
On the process, we continually keep our legislation under review, with the regulators and industry feeding into our analysis. To the point the hon. Lady made—or perhaps it was the right hon. Member for North Durham—about businesses emailing the Treasury, that does happen. TheCityUK—the trade body for the City—has expressed confidence in the preparations that we have made for a no-deal scenario.
The right hon. Member for North Durham asked about the application of the SIs to overseas territories, as he has previously in Committee. The overseas territories are outside the EU so will not be affected. The exception is Gibraltar, and our onshoring SIs made provision for the UK’s regime to work effectively with Gibraltar’s regime after exit.
The right hon. Gentleman correctly drew attention to the provision around the de minimis impact assessment and the net cost to business being less than £5 million. We do not expect the SI to have a significant impact on business given that it does not introduce new substantial requirements for firms. He made a point about previous impact assessments; however, they were considered in the light of the statutory instrument discussed at the time. These are minor amendments that will not materially affect the substance.
In the 33 Committees I have been on regarding this matter—there may be some more to come—I have never said that this is a perfect solution. The Government have tried to consult widely and work with the regulators to come up with a suitable solution for the context of no deal. I have been faithfully introducing the instruments, and bringing transparency around the process.
The revision of the explanatory memorandum was a direct response to points made by those on the Opposition Front Bench in the Lords, to try to make it simpler. I thank Lord Tunnicliffe for his comments. The new explanatory memorandum has to contain, by law, a large amount of material, but paragraph 2 now offers a full explanation. It is improved, it is in one place, and it does not use the template that we used previously. It now functions as a stand-alone document, so I thank the Opposition for their input.
I hope that the Committee has found this afternoon’s sitting informative, and can join me in supporting the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019.
Oral Answers to Questions
John Glen Excerpts(4 years, 11 months ago)
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Mrs Emma Lewell-Buck (South Shields) (Lab)
The Economic Secretary to the Treasury (John Glen)
The Government take child poverty extremely seriously and are committed to ensuring that all children have the best life chances. The Government believe that moving into work and progressing in work is the best and most sustainable route out of child poverty, and we have reformed the welfare system to ensure that work pays and working families can keep more of what they earn.
Mrs Lewell-Buck
I despair at that predictable answer. There are 1.7 million children in destitution. Reports of children arriving at school hungry, scouring bins and stealing food from dinner halls are commonplace. Child poverty has risen by over half a million since 2010. Yesterday the UN rapporteur on extreme poverty was joined by Human Rights Watch in making it very clear that this Government’s relentless austerity measures and cruel welfare reforms are to blame for growing levels of hunger and poverty. Does the Minister agree with those internationally respected organisations?
John Glen
No, I do not. I do recognise the diverse needs across this country. When I served with the hon. Lady on the all-party parliamentary group on hunger and food poverty and visited South Shields, I acknowledged that there are significant challenges. That is why I am very pleased to see that the employment rate in her constituency is up 20% since 2010.
Michael Fabricant (Lichfield) (Con)
I wonder whether the Minister and the Chancellor have had a chance to read the west midlands local industrial strategy, drawn up by the Business Secretary and the Mayor of the West Midlands, Andy Street. Is the Minister aware that youth unemployment has reduced by some 50% over the last few years in the west midlands? Is that not a way to take children out of poverty?
Tim Farron (Westmorland and Lonsdale) (LD)
While there are only 300 people registered as unemployed in my constituency, there are nearly 2,500 children living below the poverty line, which tells us that living in a workless household is not the principal or only cause of poverty; low wages are also a cause. Will the Chancellor urgently review the living wage, so that it actually becomes a living wage, rather than giving it an inaccurate label intended only to ease the consciences of the comfortable?
John Glen
The national living wage has gone up to £8.21 an hour. The Government’s aspiration is to allow it to rise to 60% of median earnings. It is important to acknowledge that in 2010 take-home pay was £9,200 after national insurance and tax. For someone working full time on the national living wage, that figure is now £4,500 more, at £13,700.
Tom Pursglove (Corby) (Con)
Investing in education and skills is a positive, proactive means of promoting aspiration and ensuring that the families of the future are in working households, not in poverty. To that end, what discussions are being had between Ministers in the Treasury and elsewhere in Government about education funding and investment in skills and training?
Kirsty Blackman (Aberdeen North) (SNP)
In evidence to the Work and Pensions Committee, the Child Poverty Action Group said of the two-child cap:
“You could not design a better policy to increase child poverty than this one”.
Will the Minister use the spending review to ditch that policy?
Kirsty Blackman
That is not good enough. Analysis by Cambridge Econometrics states:
“In all of the Brexit scenarios, real wages for low-pay workers are depressed due to increases in prices and reduced levels of productivity, due to skills shortages and lower industry investment.”
Faced with this child poverty double-whammy, does the Minister agree that it is no surprise that the Tories are set for an absolute drubbing on Thursday?
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Child poverty has now reached such an unconscionable level that Members are right to highlight that, this week, the Government were condemned by Human Rights Watch for pursuing what it called “cruel and harmful policies”. Whether or not the Government accept that, the reality is that 4 million British children now live in poverty, that that figure has grown by 500,000 in the last five years and that the majority of those children have parents who are in work. Let me ask the Government: if they do not accept that Conservative policies are creating this crisis, what do Ministers believe is responsible for this humanitarian disaster?
Mr Philip Dunne (Ludlow) (Con)
Stephen Gethins (North East Fife) (SNP)
The Economic Secretary to the Treasury (John Glen)
The Government published a detailed set of economic analyses on the long-term impacts of EU exit on the UK economy—its sectors, nations and regions, and the public finances—covering multiple EU exit scenarios. The analysis shows that the spectrum of outcomes for the future UK-EU relationship would deliver significantly higher economic output than in a no-deal scenario in all nations, including Scotland.
Stephen Gethins
The Minister is right to highlight those analyses, which show that every single Brexit will be damaging to our economy and will hit public services. Coming after a decade of Tory austerity, will he rule out a no-deal Brexit and use the comprehensive spending review to start investing in our public services?
Patricia Gibson (North Ayrshire and Arran) (SNP)
Patrick Grady (Glasgow North) (SNP)
Mr Peter Bone (Wellingborough) (Con)
The Minister did not quite answer the question from the hon. Member for North East Fife (Stephen Gethins). Is the Government’s default position still that on 31 October, we will leave on a no-deal basis if no agreement has been made?
Sir Desmond Swayne (New Forest West) (Con)
Is not the greatest threat of uncertainty to the Scottish economy the prospect of a second independence referendum?
Daniel Kawczynski (Shrewsbury and Atcham) (Con)
Kevin Hollinrake (Thirsk and Malton) (Con)
When Sally Masterton discovered a £1 billion fraud at Lloyds Bank the bank discredited her, constructively dismissed her and prevented her from working with the police investigation. Five years later Lloyds apologised for her mistreatment but nobody at the bank has been formally investigated or sanctioned for this mistreatment. Will the Minister use his powers to instruct the Financial Conduct Authority to carry out that investigation?
The Economic Secretary to the Treasury (John Glen)
As my hon. Friend knows, the FCA is conducting two investigations into the events at HBOS Reading and Lloyds has instructed Linda Dobbs to look into who knew what when. It is absolutely clear now that such circumstances could not be repeated given the action we have taken with the senior managers regime, but I look forward to the outcome of those reviews and we will be taking action accordingly.
Emma Dent Coad (Kensington) (Lab)
Financial Exclusion: Access to Cash
John Glen Excerpts(4 years, 11 months ago)
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Bim Afolami
That is good. I hope that the Minister will tell us what work he can do across Government to champion financial education, which we all agree needs to be improved significantly.
The Minister wrote to me on 20 February about things that the Government were doing to promote affordable lending and credit unions, and about the affordable credit challenge fund, a no-interest loan scheme. Those are all very good things, but I simply say to him: we want more. There is a need for legislative change to allow all types of credit to be provided by credit unions. If he pushed that through Government, he would be a hero not only on the Government’s side of the House but on the Opposition’s side as well.
The last thing I will say about the cashless society is this: I was on a trip to China a year or so ago and I was in a city called Wuhan, a long way away from Beijing, and I could not use cash. Things are moving very fast. I could not use cash. We need to enable people to adapt to the new society and not try to hold back the tide. The Government need to help people achieve that.
The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir Henry. I thank the hon. Member for Feltham and Heston (Seema Malhotra) for securing this important debate. I commend her for encouraging us to consider the issue across multiple areas, because it is in understanding how things fit together that we will find some of the solutions that the 15 speeches that I have carefully listened to in this morning’s debate have drawn attention to.
To improve financial inclusion, we need to be firing on all cylinders, bringing together regulators, civil society and industry—from the big banks to credit unions—to ensure we create a financial services landscape that offers something for every consumer. I am keen to engage with the points made. I will have further conversations, including with the hon. Member for Glasgow East (David Linden) tomorrow; I have attended the all-party parliamentary group of the hon. Member for Makerfield (Yvonne Fovargue) and met a number of other colleagues, who are here today, on specific matters. I will try to attend to all the points in my response.
It is undeniable that the retail financial landscape is changing, as more consumers and businesses opt for the convenience, security and speed of digital payments and digital banking. At the end of 2017, debit cards overtook cash for the first time as the most frequently used payment method in the UK. It is also true that increasing digitalisation and technological innovation are changing not just the way we pay for things, but every part of our society—from communications to shopping, and from transport to healthcare. It is an exciting but disruptive time. I acknowledge that it is a confusing time for some of our constituents, as they struggle to keep pace with the rate of change.
The Government recognise that there is a need for cash and traditional face-to-face methods of banking. Although financial firms take operational resilience very seriously—indeed, last Monday I visited Barclays Joint Operations Centre to see how the bank is keeping its customers safe from cyber-attacks—we cannot guarantee that IT systems will never fail. Cash is therefore a crucial back-up system that many people continue to rely on.
We have heard that cash remains some people’s preferred, or only, method of payment for a variety of reasons. I am sensitive to that, and it is important that the Government act. We have expressed our commitment to safeguarding access to cash for people who need it. As the hon. Member for Feltham and Heston acknowledged, we have set up the Joint Authorities Cash Strategy Group, which brings together the Bank of England, the Payment Systems Regulator and the Financial Conduct Authority, to provide comprehensive oversight of the UK’s cash infrastructure, from supply to customer access. The announcement was made a couple of weeks ago, and the group’s work will complement the Bank of England’s work to reform the wholesale cash industry, so that it encourages innovation and guarantees resilience, even in a lower cash usage environment. As cash is used less, we need to refine the way it is distributed, because the existing method is too expensive and needs to be improved.
Industry has a central role to play in maintaining access to cash, because with industry innovation we can do more at a lower cost. As the Access to Cash Review showed, creative industry initiatives are already being developed. In conjunction with PayPoint, Link is exploring a new service that offers cash and balance inquires through PayPoint’s convenience store terminals. In response to the hon. Member for High Peak (Ruth George), I make the following observation on an initiative by Square, a digital payments company that recently did a trial in Holywell to help small, independent retailers take card payments. It found that 55% of shoppers in Wales would be more likely to shop locally if businesses took cards, which has led to more than 95% of the town’s independent shops now taking cards. It works both ways, and FinTech provides new opportunities.
The shadow Economic Secretary mentioned the important initiative by Lloyds, in partnership with Visa. I note his reference to the Post Office, which provides for cash withdrawals and cash and cheque deposits at each of its 11,500 branches across the UK. Indeed, a sub-postmaster in Devon, whom I met last year, recently contacted me again to say that banking transactions have really boosted business at his rural post office, which is hosted in a library. I will meet him next week to look at that and at what lessons can be learned across the country.
I am sensitive to the points raised by the hon. Members for Feltham and Heston and for Harrow West (Gareth Thomas) on credit unions. I want to update the Chamber on that matter, which I take very seriously. There are 440 credit unions across the United Kingdom, and it is a question of distilling exactly what they want to happen. When I spoke to a number of CEOs of credit unions at the Association of British Credit Unions Limited conference on 9 March, it was clear that they have initiated a national call for evidence and will come back in September with a clear ask of Government about what legislative action needs to take place. As the hon. Member for Glasgow East helpfully pointed out, there credit unions have a whole range of experiences. It is not a question of the Government’s mandating them to be set up, because that would not work. We have initiated a pilot for prize-linked savings, and I hope that will actually increase the use of credit unions. I note the suggestions about getting schoolchildren involved in the use of credit unions, and I am open to looking at how that could be advanced.
Mr Sweeney
I spoke to John Lyons, who runs the Carntyne and Riddrie Credit Union. He made it clear that the reason the Greater Milton and Possilpark Credit Union failed my constituents was that credit unions were previously allowed to share resources between each other. Owing to punitive restrictions on regulations, that is no longer the case, which is why individual credit unions are more vulnerable to failure.
John Glen
I am always sympathetic and listen carefully to credit union chief executives and their experiences. I have been in the Treasury for 16 months, and rarely does a week pass without my receiving notification of a credit union that could be in difficulty. If we are to loosen the regulatory reform and enable more transactions and more functions of credit unions, we need to ensure that we have the governance in place, so that people do not fall foul of credit unions that go the wrong way. It is a complex area. I am not trying to be patronising, but it is important that we get a joined-up policy solution that pays attention to the sector’s requests.
Although maintaining access to physical banking and cash is important, there is another, equally important side to this story: ensuring that the benefits of new technology are felt by all, and that everyone has the ability to participate. For people who need to keep tight control of their money, and for those who cannot afford to lose a penny, the ability to check their bank balance on the go, or to freeze a card instantly, is critical. We know that too many people are currently excluded from such benefits.
Recognising that the advantages of digitalisation should be felt by all, the Government’s digital strategy commits to enabling people in every part of society to access the opportunities of the internet. We have established the digital skills partnership to bring together the public, private and third sectors to address the digital skills gap in a more co-ordinated and collaborative way. From 2020 we will introduce an entitlement for adults who lack basic digital skills to undertake fully funded basic digital skills training. This new entitlement will mirror existing entitlements for adult literacy and numeracy training.
I want to address the point made by my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami). The new Money and Pensions Service will simplify the current public financial guidance landscape and offer a more holistic approach to financial education. I am talking to representatives of UK finance and the voluntary sector to look at how we can get a more co-ordinated approach to financial education, which is always raised in these debates.
The Government recognise that access to the internet depends on being able to connect to it, and we are making progress with this problem. Superfast broadband, providing downloads of at least 24 megabits per second, is now available to 96% of UK homes. Hon. Members will have seen that last Sunday we launched the Rural Gigabit Connectivity programme, a £200 million investment that will enable communities that have not previously benefited from broadband to leapfrog to the most advanced fibre technology. I hope that will be a solution for colleagues who represent the most rural constituencies.
I will conclude, in order to give the hon. Member for Feltham and Heston an opportunity to respond. We all agree that vulnerable customers must not be left behind as digitalisation changes the way we bank and pay for things. Of course, part of that is about ensuring that physical banking and cash remain available to people who need it—the Government, regulators and industry are already taking action to ensure this. However, it is equally important that we redouble our efforts to ensure that all our constituents benefit from new technology. We cannot reverse digital innovation and nor should we, given the benefits it brings to our constituents.
I want to end with a call to arms to industry to think about all consumers—not only when it is considering the future of cash and physical banking, but when it designs new digital products and brings new innovations to the market. I will keep pushing industry to achieve this, and I hope hon. Members will join me in doing so.
Debt Collection Letters
John Glen Excerpts(4 years, 11 months ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship, Sir Graham. I thank the right hon. Member for North Norfolk (Norman Lamb) for raising the important issue. I read his article in The Times Red Box today and I have looked into the matter in some depth. I hope that I will be able to respond to his core request.
The right hon. Gentleman is committed to helping to improve the lives of those with mental health problems. In particular, his efforts alongside those of my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer) and the hon. Member for Liverpool, Wavertree (Luciana Berger) during the passage of the Financial Guidance and Claims Act 2018 have ensured that those in mental health crisis have an alternative access mechanism to enter breathing space, which is a policy I will touch on later.
I appreciate the right hon. Gentleman’s concerns about the content of debt collection letters. I have an example here, and he is right to draw attention to the language used and its intimidating nature. I share his concerns regarding the impact that such letters can have on vulnerable people, as he set out clearly. I understand that 6,000 individuals have signed a petition by the Money and Mental Health Policy Institute to call for the prescribed content in debt collection letters to be updated.
If hon. Members will permit me, I will set out the Government’s overarching objectives for the consumer credit market, then get to the core point. The Government’s vision is for a well-functioning and sustainable consumer credit market that can responsibly meet the needs of all consumers. Of course, that vision extends to how firms treat consumers when they encounter financial difficulties. That is why we fundamentally reformed the regulation of the consumer credit market by transferring regulatory responsibility from the Office of Fair Trading to the Financial Conduct Authority just over five years ago, on 1 April 2014. When that transfer took place, 82 sections of the Consumer Credit Act 1974 were repealed and replaced by FCA rules, but 167 sections could not be easily replicated and remained in the Act, including the sections that dictate the prescribed content of debt collection letters.
The information requirements in the 1974 Act aim to protect consumers by reducing the information asymmetry between firms and customers. Where there is a requirement for information to be reproduced using prescribed wording, that is intended to highlight important messages on a consistent basis and to ensure that firms give consumers the information that they need to make informed decisions, across the wide variety of consumer credit products.
The FCA had a statutory duty to review the retained sections of the Consumer Credit Act by 1 April 2019. Its review considered whether the remaining sections could be transferred to FCA rules, as the right hon. Gentleman suggested, without having an adverse impact on consumer protection, and whether those sections remained appropriate for today’s market. On 25 March 2019, the FCA’s final report was laid in Parliament. It is a substantial piece of work, as I am sure he knows. I welcome the report and the significant and extensive analysis undertaken by the FCA during the review.
The Government are undertaking a programme of work to review the FCA’s findings and consider whether further reform of the consumer regulatory regime is needed. Indeed, a few weeks ago, I had an extended session with officials to discuss the programme of work relating to the Consumer Credit Act and better understand the breadth and depth of the issues that are manifest in it.
I acknowledge the point that the right hon. Member for North Norfolk made about, essentially, a quick win with respect to the reform of the letter, leading to a more substantial and extensive piece of work, and I will examine carefully what he said and take that back with me, to try to understand what could be possible. As any financial services lawyer will attest, the Consumer Credit Act 1974 is a complex and technical beast, and we want to ensure that we take an holistic view of it, considering it in its entirety so that further complexity is not created and no adverse and unexpected outcomes arise. However, I recognise that changing the wording on a letter would not appear to be a significant issue with respect to the wider implications.
Norman Lamb
I appreciate the Minister’s constructive response. As an ex-lawyer, I think it is perfectly possible to address the real mischief here by adapting the letter using more constructive and up-to-date wording without undermining the broader objectives of the 1974 Act.
John Glen
The right hon. Gentleman rightly reiterates the challenge, and I take it on. At this point, I should also mention the reference he made to the work of the hon. Member for Leeds West (Rachel Reeves) on bailiffs. There is absolutely no excuse for aggressive tactics from enforcement agents, and that is why the Ministry of Justice has launched a call for evidence, looking at the need for an independent regulator. The call closed in February 2019 and the Government will respond in the summer. I am meeting with the relevant Justice Minister just after the recess to press for robust action, so that is very much on my agenda as well. I recognise the right hon. Gentleman’s portrayal of how deeply wrong some of those behaviours are.
Hugh Gaffney
Sometimes a letter gets passed on to another debt collection agency and then another, so pressure is being put on individuals all the time. If I remember rightly, each time a letter is passed on more money is added on. I ask the Minister to have a look at that.
John Glen
The hon. Gentleman makes a reasonable point, and that is something we need to examine carefully when we consider what needs to happen in this area. I thank the hon. Gentleman for his intervention.
Stakeholder views will be essential to inform the Government’s decision making, and I would welcome the opportunity to meet the right hon. Member for North Norfolk and any other interested colleagues across the House to better understand how this important issue should be addressed as our policy thinking progresses. During my time in office, I have encountered many individuals who have been in financially vulnerable circumstances and I have compassion for the unique challenges they face. Indeed, only last week I welcomed to the Treasury some individuals with lived experience of financial difficulty, to hear in more detail how they had got into those situations.
I would like to take this opportunity to assure the right hon. Member for North Norfolk that reviewing the mental health aspect of the prescribed content in debt collection letters will be top of my list of priorities during this programme of work. The issue requires continued dialogue to understand what the best outcome for these vulnerable individuals would be, and how best to deliver it. Given the letter’s rather terse words referring to a solicitor, which are really not appropriate and could have been written a long time ago, I will reflect on the right hon. Gentleman’s point about the changing nature of debt advice and about how best it can be presented.
That does not mean that those most at risk will not see benefit in the near future. I draw attention to the significant work that has been undertaken to meet the Government’s manifesto commitment of implementing a breathing space scheme, which I alluded to earlier. The scheme will give the most vulnerable consumers 60 days of respite from creditor action, to access debt advice and put their finances on a sustainable footing.
Yvonne Fovargue
Can the Minister confirm that the breathing space would also apply to statutory authorities, for example local authorities, which are possibly the biggest users of bailiffs?
John Glen
I will come on to that point in a few moments, but my instinct, as I think the hon. Lady knows from my visit to the all-party parliamentary group on debt and personal finance, is that if the breathing space does not contain the maximum amount of public sector debt it will not be meaningful. At this moment, however, I cannot formally confirm how the scheme will work, but I will say a few more things in a few minutes.
The Government set out the detailed policy for the breathing space scheme in a consultation launched in October 2018. As part of the scheme, firms will not be able to communicate directly with consumers to request repayment of debt. In particular, the consultation paper set out the design of an alternative access mechanism for those in mental health crisis. The mechanism would enable those individuals to enter breathing space without having directly accessed debt advice. I feel very strongly about the mechanism, as those suffering from a mental health crisis may find it particularly difficult to engage with debt advice services in the way that people without mental health challenges do.
The consultation closed in January 2019, and the Government will shortly publish a response to set out their approach to the whole scheme, before laying regulations to implement breathing space before the end of the year, which is when a comprehensive answer to the question asked by the hon. Member for Makerfield (Yvonne Fovargue) will be provided.
In conclusion, I share the concerns raised by the right hon. Member for North Norfolk and recognise that, in certain cases, the content of debt collection letters can increase consumer harm. I hope I have assured him that the issue will be at the top of my list of priorities when considering further reform in the consumer credit regulatory framework. I take the point about whether the letter issue can be expedited separately, and I look forward to working with the right hon. Gentleman to better understand the most timely and effective way of remedying the problem. I thank him very much for bringing the matter to the House.
Question put and agreed to.
Contingent Liability Notification
John Glen Excerpts(4 years, 12 months ago)
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The Economic Secretary to the Treasury (John Glen)
I can today confirm that I have laid a Treasury Minute, informing the House of the contingent liability that HM Treasury has assumed in relation to the transfer of sponsorship of the Bradford & Bingley plc (B&B) employer defined benefit pension scheme and the NRAM employer defined benefit pension scheme (the “Schemes”) from B&B and NRAM, respectively, to UK Asset Resolution Limited (UKAR).
UKAR and the trustees of each scheme (the “Trustees”) have agreed that the sponsorship of both Schemes should be transferred from B&B and NRAM to UKAR.
The contingent liability takes the form of a credit support deed (a “CSD”), entered into by HM Treasury and UKAR in respect of each of the Schemes, which will provide comfort to the Trustees that, in the event UKAR is unable to meet any payment obligation in respect of one or more of the Schemes, HM Treasury will provide UKAR with sufficient funds to meet such payment obligation. The remote maximum contingent liability possible under the CSDs together is estimated at c. £1.4 billion, based on the current mortality assumptions and discounted defined benefit obligations of the Schemes. This would only crystallise in the highly remote circumstances where the value of assets in both Schemes fell to zero and HM Treasury became liable for all liabilities under each scheme. Given that the majority of assets in the Schemes are held in gilts and the expectation that each scheme will be in surplus at the time of transfer, this scenario is considered highly unlikely.
As the Schemes will be in surplus at the time of transfer, UKAR is not expected to make any additional payments to either scheme until at least the next triennial valuations in three years’ time. In the light of this and the fact that UKAR will be funded via the usual supply procedure, HM Treasury considers it unlikely that the CSD will be called upon.
The CSD will remain in place for as long as UKAR remains the sponsor of the Schemes. It should be noted that HM Treasury, as the ultimate owner of B&B and NRAM, already has indirect exposure to this risk. An existing guarantee given by HM Treasury to the B&B pension scheme trustees will remain in place following the transfer of the B&B pension scheme to UKAR.
The transfer of sponsorship will not affect members’ benefits, there will be no impact on members’ accrued rights, and the relevant trustee board of each Scheme will remain unchanged following the transfer of sponsorship to UKAR.
I will update the House of any further changes as necessary.
[HCWS1553]
Bilateral Loan for Ireland
John Glen Excerpts(5 years 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 15 April, in line with the agreed repayment schedule, HM Treasury received a total payment of £407,843,097.02 from Ireland. This comprises the repayment of £403,370,000 in principal and £4,473,097.02 in accrued interest.
As required under the Loans to Ireland Act 2010, HM Treasury laid a statutory report to Parliament on 1 April covering the period from 1 October to 31 March 2019. 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.
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791132/Ireland_loan_statutory_report_April_2019_web.pdf
The next statutory report will cover the period from 1 April to 30 September 2019. HM Treasury will report fully on all repayments received during this period in the report.
[HCWS1519]
Ministerial Equivalence and Exemption Directions in Financial Services: EU and EEA
John Glen Excerpts(5 years ago)
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The Economic Secretary to the Treasury (John Glen)
The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (S.I. 2019/541), includes a power for Ministers, for up to twelve months after exit day, to make equivalence directions and exemption directions for the European Union and EEA member states.
I have today laid before Parliament ministerial directions which exercise the power in four specific areas, to help ensure that the UK will have a functioning regulatory regime for financial services in all scenarios.
The first direction determines that the EU-adopted international financial reporting standards are equivalent to UK accounting standards and can continue to be used, for example, to prepare financial statements for requirements under the transparency directive, and to prepare a prospectus under the prospectus directive. This delivers on a commitment made by the Government in November 2018.
HM Treasury, the European Union and the EEA European Free Trade Association countries have decided to provide exemptions for central banks and certain public bodies under certain prudential regulations in the area of financial services in the event that the United Kingdom leaves the European Union without an agreement. Therefore, directions have been made exempting these EU and EEA bodies from certain requirements under UK law in force after exit.
These measures are important for avoiding disruption to the financial services sector, and the businesses and individuals relying on it, in the event that the United Kingdom withdraws from the European Union without an agreement.
Copies of the directions are available in the Vote Office and Printed Paper Office and will be published alongside the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 on Legislation.gov.uk.
[HCWS1512]
Counter-Terrorism Asset Freezing Regime: 1 October to 31 December 2018
John Glen Excerpts(5 years 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 October 2018 to 31 December 2018,
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).
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-Qaida (Asset-Freezing) Regulations 2011.
Under EU regulation 2580/2001, the EU has responsibility for designations and OFSI has responsibility for licensing and compliance with the regime in the UK under part 1 of TAFA 2010.
A new EU asset-freezing regime under EU regulation (2016/1686) was implemented on 22 September 2016. This permits the EU to make autonomous al-Qaeda and ISIL (Daesh) listings. One new designation under the regime was made during this quarter, and is recorded in the fifth column of the annexed table entitled “New Designations in this Quarter”.
The Sanctions and Anti-Money Laundering Act 2018 will help ensure that UK counter-terrorist sanctions powers remain a useful tool for law enforcement and intelligence agencies to consider utilising, while also meeting the UK’s international obligations.
Under the Act, a designation could be made where there are reasonable grounds to suspect that the person or group is or has been involved in a defined terrorist activity and that designation is appropriate. This approach is in line with the UK’s current approach under UN and EU sanctions and would be balanced by procedural protections such as the ability of designated persons to challenge the Government in court.
The annexed tables set out the key asset-freezing activity in the UK during the quarter.
Attachments can be viewed online at:
http://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2019-04-11/HCWS1509/.
[HCWS1509]
British Steel Pension Scheme: Transfers
John Glen Excerpts(5 years ago)
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The Economic Secretary to the Treasury (John Glen)
It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I thank the hon. Member for Blaenau Gwent (Nick Smith) for securing this important debate. I know he has engaged extensively and constructively with the Financial Conduct Authority on these matters over the past year. I was pleased to meet him in February to discuss how we can avoid a repeat of the unfortunate circumstances that occurred in the British Steel pensions scheme case. I am aware of the extensive work he has undertaken with the hon. Member for Aberavon (Stephen Kinnock) and others from south Wales, and I know that the FCA has valued immensely that interaction to try to improve communications and other aspects raised in the debate this morning.
Many issues have been raised in the debate, and I will seek to respond to them all—particularly the importance of a well-functioning financial advice market. I have listened carefully to all those who have made observations about the aspects of that that are not functioning well.
I will refer to the lessons that have been learned specifically in the British Steel pensions case; the actions the FCA has taken to address unsuitable pensions transfer advice; the protections in place for consumers; and the issue of so-called phoenix firms—an outrageous situation where individuals seek to leave behind responsibility for a previous, failed enterprise, recreate a new enterprise and therefore absolve themselves of responsibility.
I am here as the Minister responsible for financial services. I note the questions that have been raised by the hon. Member for Birmingham, Erdington (Jack Dromey) concerning the status and other aspects of the pensions Bill. I was in front of the Work and Pensions Committee last week with my colleague, the Minister for Pensions, so I have some observations on that, but he has lead responsibility in that area, so I shall seek to secure a response from him.
As the Minister responsible for financial services, I am committed to ensuring that a well-functioning financial advice market exists to support people to make the right decisions for them and their families. In 2015, as has been mentioned, the Treasury and the FCA launched the financial advice market review, with the goal of improving the accessibility and affordability of financial advice. The Government and the FCA have now implemented all 28 recommendations from that review and will be reviewing the advice market again over 2019 to monitor progress and report back next year.
The Government have also made financial advice mandatory for people considering a defined-benefit pension transfer where the value of the pension is over £30,000. That threshold is purposely low, given the dire consequences of taking poor advice and making unwise decisions—as has been said in relation to a number of cases this morning. That is to ensure that people consider the fact that they may lose guaranteed income in retirement and are aware of all the options available before they make such a complex decision.
Turning to British Steel, although most financial advisers offer sound advice, unfortunately there are cases where the advice people receive is not right for them. The British Steel case was one such instance and resulted from a unique set of complex circumstances. A minority of advisers were responsible for giving unsuitable advice, which resulted in losses for scheme members. The restructure of the British Steel pension scheme occurred at a time when there was considerable concern over the future of Tata Steel, and members were understandably worried about whether they were about to lose their jobs and pensions. Several public bodies were involved in supporting scheme members to decide what to do with their British Steel pension, and it would be helpful to outline their different roles, because that will bring clarity to where the issues lie and how we can address them.
The Pensions Regulator is responsible for negotiating and agreeing arrangements where an employer is unable to continue to support a defined-benefit scheme, as was the case for Tata Steel and the British Steel pension scheme. That includes guidance and oversight of the trustees and scheme administrators. As such, the Pensions Regulator was also responsible for the options available to BSPS members, the communications sent by the trustees and the deadlines for decisions to be made.
The FCA is responsible for the regulation of the financial advice market. Financial advice firms must be authorised by the FCA before they are permitted to provide advice, including on pension transfers, and advisers are required to provide financial advice that is suitable for the individual’s personal circumstances.
The Pensions Advisory Service was an independent service offering free-to-consumer guidance on pension matters. As has been mentioned, it has recently been merged with Pension Wise and the Money Advice Service to create a new single financial guidance body, which is now known as the Money and Pensions Service. The hon. Member for Birmingham, Erdington asked from the Opposition Front Bench about the status of that body. The chief executive is now in place, and work is going on in this financial year to set up the processes for bringing those three entities together. There will be a series of announcements over the coming months about their intentions, but the body will operationalise in the course of the coming financial year.
As to the lessons learned from the experience in south Wales with the British Steel scheme, the independent Rookes review, which considered the communication exercise that supported members of British Steel to take decisions on their pension, reported in January. It noted that there are important lessons for organisations to learn to prevent such a case from happening again. There are, I think, 18 recommendations, and they include earlier intervention and intelligence sharing between the regulators and the Money and Pensions Service; improved support for members considering cash transfers out of defined-benefit schemes; improved guidance for trustees facing restructuring and other major changes; and improved message content clarity and channels.
The Pensions Regulator, the Financial Conduct Authority and the Money and Pensions Service have publicly committed to addressing the review’s remaining recommendations. They have agreed a joint protocol to work together to ensure that consumers are appropriately protected. It includes ensuring that support and communications are in place for members of defined-benefit pension schemes, ahead of any restructures and consultations—something manifestly different from what happened in the regrettable case that we are considering. Another aim of the protocol is that there should be better co-ordination of the involvement of different public bodies through early intervention, expedited approval processes and improved information sharing. The bodies have also developed branded written materials for trustees, to ensure that there are better communications with pension scheme members, including letters to alert them to the risks of transferring out of DB pension schemes, and the giving of practical information.
I will now talk about action on unsuitable pensions transfer advice, because the British Steel case has also raised many questions about quality.
Stephen Kinnock
The Minister has set out some of the structural and institutional issues and the lessons to be learned, but does he agree that when 8,000 members transfer out there is clearly a problem that needs to be addressed at source? Flagging up risks is all very well, but this is a case of shutting the door after the horse has bolted. We need a system that prevents such mass migration out, because once those kinds of numbers are involved it is highly likely that people will be going against actuarial advice that is in their best interests.
John Glen
I have listened carefully to the hon. Gentleman’s interventions, and he is right to say that 6.6% of the 122,000 individuals who had those pensions did transfer out, and that, in general, the default option would not be to transfer out of a DB scheme. There is work going on to develop pathways. I am not clear, given that it is not my direct area of responsibility, about the status of that work. I think, however, that there is a challenge, in the context of the policy on freedoms that is now well under way, about how to reconcile that freedom with making the decisions in question. Perhaps I might pivot over to consider the DC schemes. I think what is happening is that many people decide to take the 25% tax-free lump sum and then do not necessarily make appropriate, or the best, decisions on the remainder of that pot of money. Work is being done on that, but with respect to the specificity of the default option, I cannot give the hon. Gentleman a definitive response now.
I think we are moving to a point where there will be default pathways that people will need to be advised on when they take advice. I think that is probably a sensible compromise that deals with the fact that, in some instances, not coming out of the DB scheme would not be the right thing to do. The hon. Gentleman will agree about that, although he is also perfectly correct to say that, generally, not coming out would be the right thing to do. There is work to be done, but I think progress is being made, and I acknowledge the sensible point he has raised.
Nick Smith
I want to focus on what the Minister calls the 6%—perhaps nearly 8,000 people—who may have been badly advised in this case. What is he going to do to get the FCA to up its game, contact those people and help them, in case they have been badly advised?
John Glen
Following our meeting, I undertook to speak to Andrew Bailey, the chief executive. We are due to meet every few months, and our next meeting is imminent. I will speak to him about that. A number of live investigations are under way; I do not have investigative power myself, but I will take a close interest in those investigations. Individual companies—I will not name them—are being actively investigated now, and I expect the FCA to make announcements and recommendations consequent to those investigations imminently. I am not privy to the detail, but I am taking a close interest and will be speaking to the chief executive, because I realise that time is pressing on. This morning we have heard vivid accounts of individuals and families ruined by these decisions, and I take the matter seriously.
To get back to my script, the FCA leads on financial advice and has considerable power to act against firms and individuals who provide negligent advice. To be clear: the FCA can impose a financial penalty on a firm, require the firm to pay redress to its customers, restrict the firm’s permissions, or prohibit individuals from operating in financial services. The FCA can bring criminal prosecutions. I hear the enthusiasm for that action being taken, and I think the FCA hears it too, but it works closely with other organisations to support criminal prosecutions. Both the Government and the FCA are targeting their attention on the effective regulation of financial services and wider work to tackle scams, including the recent implementation of a ban on pensions cold calling.
Jack Dromey
That is helpful, but in the case of British Steel, I think it would send absolutely the right message to the workers concerned if the Minister said today that a sense of urgency is needed on the part of the FCA and the South Wales police about investigating potential criminal wrongdoing and taking action. The workers back at the plant would welcome that.
John Glen
I am happy to respond to that intervention by saying that it is absolutely imperative that the FCA works with all bodies to hold those individuals to account and to take the appropriate action in the light of the evidence presented to it. This is urgent; the individuals who have suffered this experience expect that of the FCA, and I believe the FCA is keenly aware of that.
The hon. Member for Blaenau Gwent talked about the regional presence of the FCA. It has more than 3,000 employees and runs an annual programme of regional supervisory workshops under its “Live and local” banner, in which it educates firms and gathers intelligence from across the country. That has included recent workshops on DB pension transfers. Although the FCA does not have a series of regional offices, there is a clear expectation on the part of the Government and the FCA itself that it will go out into communities across the country, to ensure it has a presence among the 35,000 IFAs that operate.
The regulator is also undertaking further work on the pensions transfer advice market. The FCA is analysing responses to a recent data request from firms that undertake pensions transfer advice and is planning a programme of work, which is likely to include further engagement with stakeholders, targeted education for firms involved in providing pension transfer advice, and assessment of those firms significantly involved in the provision of DB transfer advice. The FCA has already announced a requirement for all pension transfer specialists to obtain the same qualifications as fully regulated investment advisers, alongside their existing qualifications, by October 2020. In relation to the BSPS, the FCA intervened to stop 11 firms from providing pensions transfer advice, and several firms are still under investigation.
It is important to ensure that consumers are protected from poor-quality and unsuitable advice, and there are proper mechanisms for redress when they receive poor advice. The first port of call for consumers to seek compensation is to approach the firm itself. If they cannot resolve the issue, consumers can take their complaint to the Financial Ombudsman Service. The FOS is a free, independent service that provides an alternative to the courts. The maximum award it can recommend was increased at the beginning of this month from £150,000 to £350,000 per individual. If firms go into liquidation and cannot provide compensation to individuals, a second tier of protection is open through the financial services compensation scheme. The FSCS is mainly funded by an annual levy on the financial services industry. Since its founding, the FSCS has helped millions of people and paid billions of pounds in compensation.
It is important to note that in the British Steel case, only a very small minority of former steelworkers who have taken their claims through the FOS and the FSCS have not been fully compensated. That group were all clients of one firm, and the Government’s decision to make financial advice mandatory for those seeking to transfer their DB pension has therefore guaranteed a crucial layer of consumer protection to those individuals.
“Phoenixing”—firms or individuals seeking to avoid liabilities arising from poor investment advice by re-emerging as a different legal entity—can leave consumers and taxpayers out of pocket and tarnish the reputation of the industry. The FCA has a range of tools to identify and act against firms or individuals who try to avoid responsibility in that way. Those seeking to liquidate firms must provide information about outstanding complaints, and the assets of collapsed firms cannot be sold on or passed back to former directors without the prior consent of the regulator. The FCA has already used those powers to prevent several individuals and businesses from avoiding their liabilities, and other cases are under investigation. This has caused some individuals to withdraw their applications, knowing full well that they will not get through. Although I acknowledge that this will not give absolute comfort to those who have suffered, I believe that we now have in place a regime that will prevent the practice in future.
Stephen Kinnock
On the issue of compensation, phoenixing and rogue financial advisers’ ability to just shut up shop and walk away, surely there is also a question of insurance. In our recent meeting with the FCA, which I found absolutely extraordinary, it was made clear to us that there appears to be no mandatory level of insurance that financial advisers must take out so that they can be held to account and insurance pay-outs can be made. My understanding is that, as soon as these advisers see the writing on the wall and know that people will come after them for compensation, they shut down, and there is no backstop—perhaps safety net is a better term—so that people who have been ripped off can go after them through an insurance process. Does not that extraordinary situation require a policy and legislative shift so that the FCA has a chance of doing its job in this area?
John Glen
I have been trying to find the note that one of my officials kindly sent me on the quantum of insurance. My understanding is that FCA-authorised and regulated firms must have insurance in place; if they do not, the FCA has it in its armoury to de-authorise. I listened carefully to the hon. Gentleman, and his point seemed to be on the amount of that insurance. I am happy to take that matter away and consider it. On the practice of phoenixing, I am given to understand that the FCA has done a significant amount of work in that area. It launched a programme of work in April 2018 to strengthen authorisations, and I have given some of the details. I do not want to waffle further on this point, but I will give consideration to the amount and level of insurance required. The hon. Gentleman has discussed the matter with the FCA; I will do so as well and write to him. If it is not fit for purpose, it is not fit.
I thank the hon. Member for Blaenau Gwent for bringing to the House this debate on a very important topic. I was pleased to hear that he is committed to supporting the communications work with the FCA to raise awareness among former BSPS members of their rights to complain and to seek justice. The Government, regulators and other organisations are strongly committed to monitoring the market for financial advice and defined-benefit pension schemes, and to taking decisive action to ensure that these events cannot be repeated. I recognise that Ministers often say that at this point, but I have listened sincerely and carefully to the points that have been raised.
A lot can be done as a consequence of the excellent work of the hon. Gentleman and his colleagues, and through my interaction with the FCA. I accept that there have been some differences of opinion in the Chamber this morning regarding the amount that can be done by regulatory intervention and legislative action. However, I will do all I can to ensure that we exhaust reasonable opportunities for the FCA to tighten up in all these areas. The example given by the hon. Member for Birmingham, Erdington of an individual who inadvertently, unwittingly and tragically led his 20 colleagues to make certain decisions, and the multiplier effect of those, was heartbreaking, and one that the Government need to respond to. I thank Members for the opportunity to respond to this morning’s debate.