Draft Financial Services And Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 Draft Electronic Presentment Of Instruments (Evidence Of Payment And Compensation For Loss) Regulations 2018

Jonathan Reynolds Excerpts

Wednesday 4th July 2018 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Neither of these two important draft statutory instruments is particularly controversial for the Opposition. The first one, the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018, relates to the admission of alternative finance investment bonds to different trading venues, as the Minister said, including multilateral trading facilities and organised trading facilities.

I am aware that our noble colleagues in the Lords have already considered the matter. I echo the points that my noble Friend Lord Tunnicliffe made on 25 June. He said that the explanatory notes to the order could have been clearer, as it took a bit of decoding to understand that it relates to sukuk. Transparency and clarity are important—not just for scrutiny in Parliament but so that people outside Parliament understand what we are doing. I appeal to the Treasury to bear that in mind in the future.

This is undeniably a positive initiative to promote and consolidate the UK as a hub for Islamic finance. I want the UK to be a hub for as many different categories of finance as possible. According to the Islamic Development Bank, the UK already has the largest Islamic financial sector of any OECD country. In 2014, it became the first ever non-Muslim country to issue a sukuk. In a post-Brexit environment, it is important that we continue to invest in and build on the City’s strength to attract revenue from around the globe, as a world-class, world-leading financial centre, and to service our domestic financial market.

Islamic finance brings many advantages of its own. When London’s Mayor, Sadiq Khan, opened a major conference on Islamic finance earlier this year at the London Stock Exchange, he said that it drives positive, ethical change around the world. The Opposition, therefore, do not oppose creating a level playing field in this area of finance, and we do not see any immediate issue with the changes before us today. The entire point of MTFs and OTFs, as introduced by the markets in financial instruments directive, is to create a more efficient and competitive trading environment. That cannot be the case if unintended restrictions exclude certain instruments. Sukuk is an important pillar of the Islamic finance market, representing 17% of the entire industry, and competition with other trading venues globally is fierce. Hopefully, the settling of this issue will bring much-needed certainty to any issuers who are considering listing in the UK.

Will the Minister explain why this oversight is being rectified today, given that it formed part of the amendment that the Finance Act 2018 made when it was implemented on 1 April 2018? Are the Government confident that there are no further gaps in that legislation that will require attention? I look forward to the Minister’s response, and to the passage of this order, which will allow the UK to be promoted further as a centre for excellence for Islamic finance.

The second item for discussion today is the draft Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018. It is sometimes said that Back Benchers do not always find delegated Treasury business to be the most exciting business before them in the parliamentary week, but on this occasion I beg to differ. We are discussing a useful and enabling piece of technology, which has allowed banks to speed up cheque processing by using images, instead of physically transporting pieces of paper. I am fascinated by the way historical banking transactions and new technology can be brought together in ways that benefit the customer. We would surely never have dreamed, 15 years ago, that handheld phones could enable cheque deposits.

As with all exciting banking technology innovation, it is vital that we strike a balance between innovation and consumer protection. Sadly, as digital technology evolves, so too do the techniques of fraudsters looking to exploit customers at every link in the payments infrastructure. The Opposition support this regulation, which clarifies where compensation will come from if somebody is defrauded. However, it is a significant shift to transfer the liability from the paying bank to the payee bank, so it is important that that is monitored for any potential unintended consequences. The shift must be effective with regard to compensation where it is needed.

As it stands, the principal use of the image clearance system is in the banks themselves, but will the Minister encourage the further roll-out of the system to customers themselves? I am aware that some banks are already using this technology, but it is not standard yet. That would be especially valuable to customers with impaired mobility. I would be interested to know what consultation has taken place with the banking sector on progress towards that. Further safeguards may be needed to protect customers as the situation evolves. As ever, maintaining a strong regulatory framework must be our priority.