Financial Services Bill

Lord Davies of Brixton Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

Although financial regulation, supervisory processes and oversight have been worked through on previous occasions, they do not yet work or are not yet being worked so as to keep things up to scratch. Having regular, independent reviews can fill that gap and have a place within the future regulatory framework. I beg to move.

[Lord Davies of Brixton (Lab) [V]]

My Lords, the issue I want to highlight, as I did at earlier stages, is how to make regulators more accountable, given the well-established phenomenon of regulatory capture. Regulatory capture is where an industry regulator like the FCA and the other bodies mentioned in the amendment comes to be dominated by the industry that it is charged with regulating. The result is that the agency, which is meant to act in the public interest, works instead in ways that benefit the industry.

I do not think that there is any doubt that this happens, and the question is: what do we do about it? The important point to understand is that this does not happen because of inadequate, ineffective or corrupt individuals—rather, it happens because it is systemic. It is an institutional rather than an individual problem. There are various reasons for why it happens. First, a regulated industry has a keen and immediate interest in influencing the regulator, whereas customers are less motivated. They have normal lives to lead and they engage with the industry only for brief periods. However, participants in the industry are there all the time. Secondly, industries tend to devote large budgets to influencing the regulator, which inevitably has an impact. Lastly, there is the aspect of the whole industry community. People tend to move from the regulator to the industry and back to the regulator. That is bound to have some impact on the personal relationships that are established.

There is therefore no question that the phenomenon exists. How bad it gets and what we do about it is what we need to address. The first step is to acknowledge the problem and to recognise and address the challenge. The next step is to make the regulators as accountable as possible, which poses the question: who regulates the regulators? There are many ways to do that but we have before us in Amendment 2 a proposal for a periodic, independent review of the regulators.

What I have in mind is something akin to a school inspection, which does not happen because a school has demonstrated problems but is just part and parcel of a regular process that focuses the minds of all those involved. At the moment, regulating the regulators is effectively left to the Government whenever they care to turn their minds to the issue. The problem is that Governments have many other things to think about and the result is that addressing the problem tends to happen only after it has arisen. The public become aware that there is some deficiency in the regulator and therefore action has to be taken. How much better it would be to pose questions as to how the system can be improved before we encounter the problems. That happens only under a regular, independent review, as proposed under the terms of the amendment.

[Baroness Noakes (Con)]

My Lords, this is the first time that I have spoken on the Bill on Report and I draw the attention of the House to my interests as set out in the register—in particular, shares that I hold in listed financial services companies.

I have considerable sympathy for the amendment because the financial regulators are not very accountable. At the moment, there are set-piece appearances before the Treasury Select Committee in the other place and occasional appearances before committees of your Lordships’ House but these do not amount to a systematic and comprehensive examination. The Government often rely on the fact that annual reports are laid before Parliament but the annual reports of regulators get no more attention paid to them than the annual reports of companies. With rare exceptions, they provide few insights of value. By their very nature, annual reports accentuate the positive and shy away from the negative.

The problem of the accountability of regulators is not confined to financial services regulators. I could say much the same about Ofcom, Ofgem and other regulators, but we cannot solve the problems of the world in this Bill. The accountability of the PRA and the FCA is covered in the future regulatory framework, the consultation that has recently been completed. We discussed this a little on our first day in Committee and I hope that my noble friend the Minister will provide some information on the next steps when he responds to the amendment. The consultation closed over a month ago and the Treasury must have some idea on what it will be doing next and when.

If the outcome of that review, so far as accountability is concerned, is a well-developed form of parliamentary scrutiny, either jointly between both Houses of Parliament or within each House, the need for an independent review clause such as that contained in Amendment 2 would recede. Parliamentary committees can look at issues in depth but only if they are properly focused and well resourced. On that basis, the noble Baroness, Lady Bowles of Berkhamsted, might want to await the legislation implementing the outcome of that review rather than tackle the issue in this legislation, because action could be set in a broader, more holistic context regarding how the regulators will operate overall in due course.

If the noble Baroness, Lady Bowles, wishes to pursue her amendment—I thought I heard her say that it was more of a probing amendment for today—it would be wise to look again at its drafting because it calls for one review covering four regulators, but they are all different in what they do and how they do it. I am not convinced that there would be sufficient focus if one review tried to cover all the regulators—the two major ones and the two smaller units with regulatory responsibilities, one in the Bank of England and the other being the Payment Systems Regulator in the FCA.

In addition, I, like the ABI, wonder whether a review every two or three years is too frequent for the kind of in-depth review that the noble Baroness, Lady Bowles, has in mind. A rolling series of reviews, perhaps carried out over five years but concentrating on individual regulators, would provide more information of value to those seeking to hold them to account. However, the noble Baroness, Lady Bowles, has the right ideas in the amendment, although it may not be right for this Bill.

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[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and I offer my thanks for his support for the concept of Amendment 12, to which I shall speak. It appears in my name and is kindly supported by the noble Lord, Lord Sikka, and the right reverend Prelate the Bishop of St Albans.

Amendment 12 seeks to secure a discounting of debt for people entering proposed statutory debt repayment plans—something that the noble Lord, Lord Stevenson, noted has already occurred in Scotland. I set out in Committee that that is a large group of people with incomes above those eligible for debt relief orders, but with assets and income generally below those covered by voluntary agreements on bankruptcy. All those other agreements operate in ways that can result in debt being cleared in a relatively short period, much shorter than those to be covered by statutory debt repayment plans. I will not repeat all that detail again.

However, this amendment represents a development of an amendment presented in Committee to secure a fair debt write-down in respect of debts sold on the secondary market. For that initial amendment and this amended one, I pay tribute to the large amount of work done by the Centre for Responsible Credit, from which noble Lords will have received a briefing. While a strong argument exists to support this proposal, entirely legitimate concerns were raised in the debate that the impact of such a move on the operation of the secondary market would need to be properly considered. The noble Lord, Lord True, also raised a concern about the need for equitable treatment of debtors in the scheme. Taking those concerns on board, this new amendment, rather than being prescriptive, is permissive in nature and seeks to ensure that discounts on debt are secured, where appropriate, with the full agreement of creditors.

Amendment 12 recognises that many creditors listed on debt repayment plans, regardless of whether the debt originated with them or they bought it on the secondary market, will often prefer to receive a lump sum as full and final payment as opposed to low levels of instalments spread out over many years. As a result, many creditors already offer a significant discount on the total level of debt if a lump-sum settlement can be made. While the StepChange debt charity has a dedicated team to provide advice to debtors concerning possible full and final settlements, not all debt management plan providers do so. There arises a potential conflict of interest, as SDRP providers are likely to be reimbursed on a percentage basis of the total debt collected. Securing discounts for big debtors would reduce their revenues.

This amendment would therefore ensure that the Government are provided with a power to instruct SDRP providers, where appropriate, to enter into debt settlement negotiations on behalf of debtors entering the scheme. Hopefully this is not needed, but it is important that such a power exists.

In addition, it ought to be possible for SDRP providers to go further. With appropriate funding and regulation, business models could be encouraged that would allow SDRP providers to themselves buy out, and therefore discount, debts registered on their plans. For example, in recent months we have seen instances of debt of £10,000 being discounted by as much as 40% in return for full and final settlement. Enabling such debts to be bought out and subsequently collected by SDRP providers would mean the debtor would have to repay only £6,900, even after taking into account a 15% fee for the provider. It should be possible to achieve a result that is beneficial to creditor and debtor alike. I stress that building this negotiated settlement approach into the SDRP is likely to be welcomed by creditors, who in many cases are already prepared to discount heavily for lump sums in full and final settlement.

It is not my intention to push this amendment to a vote at this stage, but I seek a commitment from the Minister to continue to explore and work on this issue. I hope he can commit to a meeting between the department and interested noble Lords to see how we can take this forward, possibly in regulation.

[Lord Davies of Brixton (Lab) [V]]

My Lords, I speak in support of Amendments 11 and 12. I do not intend to delay us particularly long at this time of night, but I want to take the opportunity to pursue an issue.

My involvement in the Financial Services Bill has been a learning experience for me, as a new Member, in the way in which we are able to progress issues through the course of a Bill and the opportunities arising at different stages to make points and develop what it is possible to achieve, as opposed to what we would like in a perfect world. I have made plain my support for a more fundamental debt jubilee, but that is clearly a discussion—a fight—for another day. The amendments before us today clearly provide a useful step forward—a small step, but one that is still worth while.

I want to say a word on behalf of the debtors, those people who have taken on debts for all sorts of reasons—some good, some bad. You cannot just look at the debtors in this situation and say, “That is where the problem arose.” Quite clearly, bad debts are part of the business plan of people who lend money. We have learnt to an extent during these debates that there are issues in how you develop a plan so that, when debts are discounted, it is not just commercial organisations that benefit and there is also the opportunity for those who have unwisely or mistakenly taken on debts to gain some advantage from the discounting of debts. That is really what we are trying to work towards here.

I support these amendments and hope the Government will be able to take on board the issues raised. The underlying issue—this is the point I have pursued before—is that there is a public interest in dealing with debt and relieving people of the debts they have taken on; it does not help just the individuals concerned. Lowering the level of debt and removing onerous debts help us all generally, and particularly at the moment when we are looking for an economic revival. I hope the Government take on board the ideas behind these amendments and work towards a scheme that helps not just the debtors but all of us.