Financial Services Bill

Lord Holmes of Richmond Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this Second Reading. I declare my interests as set out in the register. It is greater pleasure to congratulate my noble friend Lord Hammond of Runnymede on his exquisite maiden speech. In it, I think the whole House heard that he is so much more than the misnomic “Spreadsheet Phil”. We have a real heavyweight in our midst, and I very much look forward to his future contributions on economic matters and so much more.

I would like to cover the areas of financial technology, or fintech, financial inclusion, or fininc, and the international perspective. Fintech is a great British success story, but we are slipping. The FCA sandbox was world-leading in its time and its great success demonstrated in how it has been copied around the world. Does the Minister agree that we need to update the sandbox to enable it to be available to all comers at all times rather than just those who are first in class? Does he agree that, in a sense, we need to industrialise the sandbox? Does he also agree that we need, for want of a better phrase, a growth box to address the scale-up challenge facing our fintechs? Does he have some early learnings from the City of London and FCA’s proof of concept around the digibox? It is early, I know, but there may be learnings that we can take into Committee and Report of this Bill.

Similarly, I would like to touch on crypto. The UK could be a world leader in crypto assets. Are we going to look to emulate MICA, do more than MICA or do something different? Similarly, we could be a world leader in setting the taxonomy for global crypto assets. Is that part of the plan? We have a fintech industry ripe for solving so many problems and driving so much economic growth. Does the Minister agree?

Another example is a central bank digital currency. If we looked at a hybrid model, we would be a world leader in rolling that out. If we do not, what about the challenge from Libra, now Diem, with the private sector potentially taking a huge influence over our macroeconomic policy? Look at what has happened with social media. If even a fraction of that happened with a digital currency, it would have not just an economic but a social impact—an impact on our very polity.

I turn to financial inclusion. Macmillan Cancer Support, which has done so much in this area, is pushing for a duty of care. I agree. Does the Minister? Similarly, with the SDRP regime, what is the timetable for bringing it into being? When we are looking at the breathing-space clauses, which are welcome, do they need further review against the backdrop of the Covid crisis? Similarly, can the Minister say whether bailiffs are being stopped from doorstepping people during this lockdown, as they were during the first one? It is not clear right now whether that is the case.

I turn to the international perspective, like other noble Lords I welcome the action in relation to Gibraltar. Will there be moves to enable Gibraltar to be part of a free-trade area with the UK?

When we look at the Basel framework, how does that work in terms of some of the international contexts? I would like to see a lot more British involvement in the continent of Africa, but African assets and investments are currently highly weighted from a risk perspective. Is that prudential or protectionist?

Does the Minister agree that when we look at technology and financial technology across the piece it would seem to make sense that we need a unit, a centre within government, maybe within the Treasury—for want of a better expression, a “fourth industrial revolution delivery unit”—to bring policy problems to private and public sector practical solutions?

In the Bill I believe we have the opportunity to reflect and consider what financial services are for. If they are for anything, they must be about enabling, empowering and unleashing individuals, institutions, innovations, neighbourhoods and nation states in a connected, interoperable and economic globe.

In the other place the Economic Secretary to the Treasury, the right honourable John Glen, called the Bill a “portfolio”—right enough. I hope noble Lords will be able to persuade the Minister during the passage of this Bill through your Lordships’ House that we can turn it into a portmanteau—a portmanteau to carry us, our economy and our society better through 2021 and well beyond.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

The difference between my amendments, when we come to them, and that of the noble Lord, Lord Tunnicliffe, is that I have included small businesses as well as consumers in protection from exploitation. That may be his intention, as other amendments would change the definition of “consumer”, and I will have other things to say later in the third group about abuse of unequal power. Both duty of care and non-exploitation of vulnerabilities are matters that mark out quality regulation and, unfortunately, we know that, unless things are explicitly elaborated in legislation, there will be those who fall below the high standards and get away with it.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this first group of amendments, and I congratulate the noble Lord, Lord Sharkey, on the way he introduced it. There could barely be a better amendment to start Committee.

In 2017, during the passage of the Financial Guidance and Claims Bill, now enacted, there was much discussion of, and amendments tabled around, a duty of care, with support from all sides of the House. The response then was that the time was not right: we had to get through Brexit and then look at financial rules and regulators in the round. Four years on, with Brexit done, I think the time is more than now to consider duty of care in all its manifestations, as the noble Baroness, Lady Bowles of Berkhamsted, set out.

In saying that, like other noble Lords I am extremely grateful for the briefings and unstinting hard work undertaken by many organisations in this area. It is invidious to single out two, but I will, not least the Money Advice Trust and Macmillan Cancer Support. Duty of care was an issue in 2017; it was an issue way before that. The Covid crisis has not brought about the need for a duty of care; it has merely shone the brightest and starkest of spotlights on the issues right across the financial services sector.

It is difficult to put it any clearer than this, from a client of Macmillan Cancer Support in one of her darkest moments: “It felt like I was fighting my bank as well as fighting cancer”. Fighting my bank as well as fighting cancer—that is a more than good enough reason to think extremely carefully about how to bring about a duty of care. That one individual speaks for hundreds of thousands.

My Amendment 129 in this group seeks to introduce rights of action for SMEs for breaches of the FCA handbook. I believe the amendment would bring clarity and consistency to how the handbook operates. These rights of action are currently available only to private persons but, when we consider this in the round, not least in the world of FS when we think of fintech founders, are the “Ss” of SMEs—micro-businesses—essentially that different from private persons? Of course I understand the concept of the corporate veil and limitation in all its forms but, in essence, when it comes to operating in a regulatory framework, as we currently have, are micro-businesses that different from private individuals, who currently have this right of action?

Imagine this: currently, a micro-business has only the letter of the contract to take action against the bank. This seems wholly unsatisfactory and more than a little asymmetric. The nature of the relationship between a small business and a bank should be much more effectively reflected in the rulebook. Need I suggest some of the ways this may have helped in the past, with Libor, forex, the GRG, and Lloyds/HBOS activities in Reading? In particular, RBS’s global restructuring group was one of the most shameful episodes in this country’s banking history.

Fundamentally, the amendment can be summed up in a simple line: in reality, how can an SME or micro-business take a bank to court? Amendment 129 offers the appropriate level of support and clarity to our SMEs, and consistency in the operation of the rulebook. Our SMEs are the beating heart of our economy. I suggest we use the amendment to put some head alongside that heart.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, at this stage I have not put my name to any amendments, but I will speak in support of Amendment 4, tabled by my noble friend Lord Tunnicliffe, and make a few relevant points. Before I start, I make the Grand Committee aware of my financial interests as set out in the Lords’ register and echo the point from the noble Lord, Lord Sharkey, about the imbalance of power between the lender and the individual—a critical point that I am sure we will come back to in Committee.

Low financial resilience and overindebtedness are huge problems for individuals and the country. UK households have nearly £250 billion of outstanding consumer credit debt and more than 42.5 million people have used consumer credit. Those are the figures for 2019, pre Covid. In 2020 and into 2021 the problem has only worsened. The FCA recently found that the number of people suffering from low financial resilience increased by one-third to 14.2 million people in October 2021. That is nearly one-quarter of the UK adult population.

We know that low financial resilience is not just about overindebtedness. It can be caused by a combination of low savings and erratic family income. Erratic income and low levels of savings are not issues that the FCA can solve—government intervention and education are required to tackle those. However, overindebtedness is an issue that the FCA can help to address. Amendment 4 and a number of the other amendments in this group, as well as the later Amendment 8, would give the FCA some of the tools to do so.

As set out by the Government, the FCA has three key functions: protecting consumers, keeping the industry stable and promoting healthy competition between financial service providers. Of those three critical functions, I would like to concentrate on the first, of protecting consumers. Amendment 4 takes that current responsibility and would add to the Bill a clause which would give the Financial Conduct Authority a duty of care and, later, under Amendment 8,

“rules … to promote financial wellbeing”.

These would enhance the FCA’s powers to protect consumers—something which I am sure we all agree is necessary.

Christopher Woolard, chair of the recent Woolard review, said:

“Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty”.


The Woolard report sets out 26 recommendations to the FCA, some on working with government and other bodies to make unsecured credit markets fit for the future. I hope that the Minister and Her Majesty’s Government will look at the amendments tabled and, where those issues and recommendations raised by Woolard align with them, we will see some government amendments or an acceptance of the amendments laid to the Bill.

This is specifically pertinent in relation to “buy now, pay later” products. On 13 January in the other place, Stella Creasy moved an amendment that would have required the BNPL industry to be regulated by the FCA. The proposal was defeated by the Government, by 355 votes to 265. The Woolard review makes the point, on the regulation of the unregulated “buy now, pay later” sector:

“BNPL products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency. The use of BNPL products nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the coronavirus pandemic”.


The report continues by stating that

“more than one in ten customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL products and make the market sustainable.”

Seeing the light, the Minister, John Glen, agreed that Her Majesty’s Government need to act and bring BNPL into the scope of FCA regulation. I was hoping to see a government amendment to this effect, as the noble Lord, Lord Sharkey, said earlier, but I am sure it will be forthcoming at later stages of the Bill.

I also bring to the Committee’s attention an article in the Observer yesterday, Sunday 21 February, entitled “High-cost lenders ‘exploit NHS workers on pandemic frontline’”. The article highlighted a number of individual cases, as well as the alarming and eye-watering interest rates of over 1,300% being charged by some high-cost credit providers.

The article is based on a University of Edinburgh Business School research report, which makes it evident that the signs of financial vulnerability within the NHS workforce are being ignored by high-cost lenders on an industry-wide basis. Overindebted NHS workers are now struggling with unaffordable loans. They did not receive them from unlicensed backstreet lenders: more often than not, they got them through FCA-licensed and regulated high-cost lenders. This is why Amendment 4 is so important in stating

“the general principle that firms should not profit from exploiting a consumer’s vulnerability, behavioural biases or constrained choices”.

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[Lord Hodgson of Astley Abbotts (Con)]

My Lords, this is the first time I have spoken in Committee, so I draw the Committee’s attention to my entry in the register. I will speak to my two amendments in this group. Amendment 87 is broadly drafted and follows on from the line of discussion and approach taken by my noble friend Lord Blackwell. By contrast, Amendment 106 is a highly specific focused proposal for improving the UK’s regulatory regime, on which I seek the Government’s response.

To take these in order, the purpose of Amendment 87 is to require the FCA and the PRA to take into account the impact on the UK’s competitiveness of any regulatory measures they seek to impose, and in particular, under proposed new subsection (2)(b), to assess the overall cost-benefit ratio of the UK’s compliance regime.

I know that even raising this issue risks one being labelled the money launderer’s or financial criminal’s friend. I plead not guilty to that, but I seek to ensure that our compliance regime is and remains cost effective. As evidence that I am not soft on financial crime, I draw the Committee’s attention to the fact that I have put my name to Amendment 84 in the name of the noble Baroness, Lady Bowles, which seeks to make failure to prevent financial crime a criminal offence, which we will discuss at a later date.

First, I want to consider culture. For too long it has tended to be argued that any money spent on compliance is money well spent. As business practices evolve so to, and quite rightly, should compliance practices, but no one has the responsibility to step back and consider whether some of the requirements of an earlier age remain effective and are still needed—so one has ever-increasing layers of regulation. Regulators are, by their very nature, risk averse. But somehow we have to create a climate in which we can find the right balance between a financial services industry which on the one hand might be seen as a system like the wild west, driving business away, and, on the other hand, a system so muscle-bound by regulation that the consequent time, expense and administrative hassle have an equally deterrent effect. It is to establish a formal mechanism to address this challenge that I have tabled Amendment 87.

We may well be told by my noble friend when he replies to this debate that the regulators are now well aware of this challenge. Of course, that is to be welcomed, but I question how far down that organisation this new mood or culture or approach has spread—and, no less importantly, how far it has spread into the compliance departments of the regulated firms. Too often, waving the regulatory stick has come to be seen as some sort of virility symbol.

The professional body, the Office for Professional Body Anti-Money Laundering Supervision, or OPBAS, in its latest annual report in March last year pointed out, in terms of disapproval, that 41% of professional bodies being supervised did not take any kind of enforcement action. No attempt was made to suggest what target figure was the right one; there was just the impression that not enough was being done and efforts and money spent must be increased. However, if you look at the list of professional bodies being supervised, it is not clear why many of them would need to take enforcement action except on the rarest of occasions. For example, one body being supervised is the Faculty Office of the Archbishop of Canterbury. I doubt that enforcement by the most reverend Primate the Archbishop of Canterbury needs to be a frequent event.

The second general point is that, too often, the attitude among regulators is, “What I have, I hold.” The House will have heard me before on several occasions speak about the poor cost-benefit ratio of the present suspicious activity report regimes, or SARs. Every year the number of SARs rises; in 2019, it reached 573,085, about 2,300 per working day. What use is made of these? The cost of all this to the regulated entities and so to consumers and clients is huge. Let us suggest that each SAR costs £250; that would create a total cost of £143 million for the sector, its customers and clients. Interestingly enough, that is almost exactly the same figure as the total money recovered by the National Crime Agency, cited in the same report, which was £150 million. Therefore, there is equality of cost, and there really seems little benefit at present.

However, to suggest that the system needs an overhaul and pandemonium breaks out. As the NCA report says,

“SARs intelligence has been instrumental”—


note the word “instrumental”—

“in locating sex offenders, tracing murder suspects, identifying subjects suspected of being involved in watching indecent images of children online and showing the movement of young women being trafficked into the UK to work in the sex industry.”

There is no mention at all of financial crime, but the clear inference is that if you wish to challenge the SARs regime, you are abetting these appalling crimes. No wonder that people are nervous about challenging the status quo.

Finally, all this feeds into the compliance departments of regulated firms. For the past 14 years, I have been the treasurer of the All-Party Group on Extraordinary Rendition. I remain extremely supportive of the group, but I would ask for a change, and I am pleased to say that the noble Baroness, Lady Kramer, has kindly agreed to take over. Accordingly, she will take over the bank account of the group and will assume signing authority. The fact that we are both politically exposed persons—PEPs—is causing enormous difficulty. It could be argued that the noble Baroness and I could use the APPG’s bank account for money laundering and financial crime generally, but the fact that we have fewer than 20 transactions per annum would suggest a limited scale for what we are going to do. However, it is clear that the noble Baroness and I will be faced with a paper trail of considerable proportions. It is this sort of mindless form filling and box ticking that is being repeated millions of times over and somebody, somewhere, needs to be charged with addressing this problem.

I turn finally to Amendment 106. It has the specific purpose of trying to improve London’s competitive position by removing, wherever possible, the obvious inequities, unfairnesses and inappropriateness of a one-size-fits-all approach by the regulators and creating in its place a regulative framework that is appropriate and effective as regards those to be regulated.

This amendment concerns the insurance sector, which is a key part of the UK’s financial services industry, and I have been helped with the wording of this amendment by the London Market Group. The group brokers in the main deals of sophisticated corporate clients, who have professional advisers at their disposal. As the FCA’s own wholesale insurance broker market study in 2019 demonstrated, these clients seek the services of a London market broker not because they are want to manage issues caused by information asymmetry—something that we have heard about already this afternoon—but because they recognise that the advanced expertise housed within broking firms can assist them in reaching the optimal outcome for their risk-management programmes. They are not consumers, but they need protection in the way that individual or less sophisticated corporate customers may do.

However, the FCA makes almost no distinction between the way it supervises the London market broker, active in the specialty markets in London, and the way it supervises a retail insurance broker dealing with an individual’s domestic and motor insurance requirements. Amendment 106 is drafted to ensure that that there are no regulatory loopholes that the mal-intentioned can exploit by those with malefic intentions. Proposed new subsection (2)(c) makes clear the distinction between retail and professional clients, while subsection (2)(d) asks whether the client has professional advisers and whether they are PRA or SCR regulated; and importantly, subsection (2)(e) covers any potential impact on the UK’s financial stability.

This amendment does not break new ground because the concept of the experienced investor is already well established. Those who qualify in this category can be offered opportunities to participate in new issues and refinancings with the minimum of fuss. Such a minimalist approach would never be appropriate for the general public. That is the approach the amendment adopts as regards the insurance industry. It makes a clear distinction between the different requirements of the professional and the general client. I hope that my noble friend will be able to give this amendment a fair wind.

[Lord Holmes of Richmond (Con) [V]]

My Lords, in participating with pleasure in this group of amendments, I declare my interests as set out in the register. I congratulate my noble friend Lord Blackwell on how he introduced the group and I agree with everything that he said—and indeed what is contained in the amendment tabled by my noble friend Lord Bridges.

I also endorse what my noble friend Lord Blackwell said on our view of the Basel framework, not least in terms of the issue of software. This is an excellent example of our move towards standards which really deliver, rather than standards which are perceived to be but are not necessarily higher or greater than other regulatory frameworks.

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[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, with this amendment, we come to the end of the group of amendments that precede the Bill. This is another slightly detached issue that I hope will get a response from the Government. Amendment 8 is supported by the noble Lord, Lord Holmes of Richmond; I am very grateful to him for his support. His amendments on financial inclusion, which are also in this group, raise many similar issues. I look forward to hearing his comments and to the subsequent debate.

I declare my interest as a former chair of StepChange, the debt charity. Amendment 8 would place on the FCA

“a duty to promote financial wellbeing”—

a new term—

“which would strengthen the FCA’s consumer protection objective and empower the FCA to introduce rules for financial services firms informed by that duty.”

As I have already said, this is a probing amendment, seeking at this stage what I would describe as a high-level response from the Government. I am not looking for detail at this stage; it is really a question of whether there is merit in further work being done on this concept. If there is, I am looking for some pointers about how the Government would like it to go forward.

The background to this amendment is a suggestion from the Money and Pensions Service that there is a case for giving the FCA the power to nudge—its term, not mine—financial services firms to underpin their activities with regard to the financial well-being of their customers and to go beyond current considerations of consumer protection or vulnerability, which I think they have already adopted to some extent. The intention is to remove any asymmetry of knowledge, expertise and capacity between the service providers and their clients. It is a very ambitious goal and would take a lot of work across many sectors not normally involved in the consideration of financial competence.

During my time as the chair of StepChange, we used the term “financial inclusion” to cover the need to have a society where everyone felt that they were knowledgeable enough to be secure and in control of their financial affairs; indeed, we have used the term since then. However, if we change that to “financial well-being”, we go much further. We could say that the aim would be to have the knowledge, confidence and resilience for all in society to pay bills as they fall due, cope with unexpected shocks and plan across our assets and income over time for a healthy financial future right through to well after retirement.

It is a very ambitious and much wider term than “financial inclusion” or any amount of financial education. The importance of the term is that it better captures a life cycle approach to the modern needs for economic health, generating confidence and empowerment within the population at scale coupled with a financial services industry that goes well beyond just designing and delivering good products and excellent services—which we accept they do, of course. It all should be backed by a regulatory system with a holistic overview and the powers to match.

Is this just smoke and mirrors, or is it a realistic vision of the way that things might be? Whatever the case, it is a good time to ask the question. As we discussed earlier today, the FCA’s 2020 Financial Lives survey found that just over half of UK adults—24.1 million people, in its figures—display one or more of the characteristics of vulnerability to their financial situation: a health condition, negative life events, low financial capability or low resilience. Other surveys have already been mentioned. The Salad Projects’ report was mentioned by my noble friend Lord McNicol, and hopefully will be again when he comes to speak on this group. It shows the reality of coping with low incomes and why a shortage of low-cost credit is such a major issue for so many citizens who, even when in regular employment and often with blameless credit references, cannot find appropriate ways to cope with even the basic costs of living, let alone saving for a rainy day and retirement.

The Government are currently consulting on a phase 2 review that includes financial inclusion on the levelling-up agenda, but we also have some other material. As has been mentioned already, The Woolard Review: A Review of Change and Innovation in the Unsecured Credit Market is a major contribution to the understanding of this area; it will come up again in later amendments. There is a lot going on. With this probing amendment, I seek a sense from the Government of whether they accept the case for a broader approach to financial well-being being championed by the Money and Pensions Service and by some firms such as NatWest and Nationwide. In particular, do they accept that, whether or not a formal duty of care is placed on financial service firms—I would support this—the forms of regulation in this area need to be expanded to deliver what the FCA calls

“fairer outcomes for consumers, including support for customers with poor financial well-being that might extend well beyond simple commercial transactions”?

Thirdly, would they consider taking this one step further and seeing what would be required from other partners and agencies?

If we really want a system capable of helping consumers to develop the skills and confidence to interact with financial service providers, people must be secure in the expectation that, if they need help in managing their decisions on their finances, they will not be ripped off and that there will be quality support for them. We must also ensure that education, advice, debt counselling services and other things focus on helping all citizens to develop the skills and confidence to interact effectively with financial service providers—not only providing the products that they need over the life cycle but developing their skills and confidence about their financial well-being and empowering them to take control and plan what they want to maximise their resources.

This is a big agenda that probably also needs action on many other issues such as low-cost credit sources. However, at this stage, we need a clear signal from the Government about how far this issue can go and on what terms they would like to see further work done.

I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on this group of amendments. I congratulate the noble Lord, Lord Stevenson of Balmacara, on the excellent way in which he introduced the group. The concept of financial well-being is a growing area and there is a lot for us all to reflect on. I thank him for all that he has done in this whole area of financial well-being, not least during his excellent time at the helm of StepChange.

We should thank all the organisations involved in financial inclusion, not least Macmillan Cancer Support and the Money Advice Trust. They go to people who are at the sharpest end of financial exclusion, and their commitment and the briefings that they provide to parliamentarians are a credit to everybody involved in that space.

I turn to my Amendment 9 in this group, which would place a duty on the Financial Conduct Authority to work toward the objective of financial inclusion. In doing this, I seek to raise the whole level of financial inclusion across our regulators. The context has moved on significantly during the Covid crisis. People who, fortunately, have never had to think about financial inclusion or have never been at a loss as to where the next bill payment will come from find themselves very much at the sharp end of financial difficulty. Fortunately, in many of those instances, the Government have stepped in through the furlough scheme and the self-employed and business loan schemes.

The reality is that, in a broad sense, these are enablers of continued financial inclusion. I would argue that, in this new world, it is difficult to consider the concept of financial stability while we still have such issues around financial inclusion. Financial exclusion has dogged our society for decades. It ruins lives, paralyses potential and corrodes communities. This amendment would give the FCA the objective of considering the barriers, blockers and bias that continue to mean that people are shamefully excluded from mainstream financial products.

Similarly, in the second point in my amendment, I want to place a requirement on organisations

“to report on their use of financial technology to increase financial inclusion.”

Not for one minute do I believe that fintech is the silver bullet—I am well aware of the issues around financial and digital exclusion—but fintech must be part of the solution and must be turbocharged at all levels of financial services. It must be understood much better by HMT, as well as the role it can play in varying degrees across financial services. This was proven at the beginning of the Covid crisis when, in a matter of hours, various fintechs came up with innovative solutions to address some of the issues that then rolled out as the crisis developed.

Having a financially inclusive nation makes sense. Having a financial inclusion objective within the scope of the FCA makes complete sense. I hope that this amendment will add to all the extraordinarily good work that everybody involved in financial inclusion is currently undertaking.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the noble Lord, Lord Stevenson, and my noble friend Lord Holmes of Richmond for tabling these amendments and for the important debate that they have initiated this evening. Both have considerable expertise in the field; I am only sorry that we are not all here together physically and able to debate the issues in our Pugin corridors.

I accept that financial inclusion is important, given the difficulties that a failure to understand finances can cause anyone, and indeed everyone. However, to my mind, this ought not to be a matter for the FCA, which should focus its efforts on providing a good, strong, unbureaucratic regulatory regime that allows those providing financial services to flourish and serves consumers well. Rather, a basic understanding of financial matters should, in my view, be inculcated first in school. We all need to understand the basics of loans, interest, probability and risk, how to manage budgets and pay our bills, the risk of fraud, what to watch out for, the value of a pension and many other things.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day two in Committee on the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I speak on this group to support my noble friend Lady Noakes’s Amendments 10 and 26. I shall not detain the Grand Committee too long. I have written an extensive article on this subject—if anyone is interested, it is at lordchrisholmes.com. All the amendments in this group seek to answer a straightforward question: who watches the financial watchdogs? If I had had a more expensive education, I could do the Latin for that, but fortunately I simply had an expansive education.

It seems to me that the start point is not whether we need more or less scrutiny and accountability but what the right level of accountability is. What are we seeking to achieve? In the EU/UK process, the debate has been characterised as being between principles and prescription. That seems a somewhat false characterisation. For me, the start point of purpose would make a lot more sense. What are we trying to achieve via our regulatory approach—to the FCA and the PRA—to enable it to be to that extent and no more? We also hear of proportionality. I support the two amendments in the name of my noble friend Lady Noakes because they are elegant and leave space for detailed thinking to be done rather than for it needing to be rushed through in the Bill.

Some of that thinking needs to rest around the three Cs of capacity, consistency and co-ordination. Does any potential scrutiny have the right people, the right skills, the right experience and the right amount of time to undertake the task? On consistency, are the scrutinisers and the regulators there all the time, day in, day out, not merely when there is a significant regulatory failure or something that seems of particular political significance? Co-ordination speaks for itself, each regulator being a constituent part of a greater sector in terms of financial services and beyond that across the whole family of regulators, inspectors and ombudsmen.

In any solution that may come out of this, the greatest amount of energy seems to be around the Treasury Select Committee and a potential sub-committee. This has a great deal to recommend it, but even if we consider the first C of capacity, there would seem to be at least a challenge on this.

A similar argument, but with the addition of the right level of expertise, in my view, has been put forward in an excellent report from the All-Party Parliamentary Group on Financial Markets and Services, which was published on 18 February. It argues that a sub-committee of the Treasury Select Committee, supported by an expert panel, could be effective in this space. As has been said, it is not for the Government to prescribe what approach Parliament takes but, in this Financial Services Bill, the opportunity should be taken to provide that space and those options for such a scrutinising body to be constructed.

We have the opportunity to move a million miles away from part of the parliamentary scrutiny that we currently have—the annual report to Parliament via the Minister. We can move towards doing effective scrutiny in the 21st century in real time, rather than via the rear-view mirror: Parliament partnering with academia, the private sector and all the relevant expertise, deploying all the necessary elements of technology to enable effective and efficient scrutiny of our financial regulators for the benefit of us all.

[Lord Sharkey (LD) [V]]

My Lords, many of the amendments in this group share the aim of increasing or providing for the first time proper parliamentary scrutiny of some financial services regulatory regimes and of those who enforce them. Some amendments deal with the problem of absent or insufficient scrutiny on a grand scale and I strongly support their intent. This Government often seem to think that parliamentary scrutiny is best avoided or diluted. Our DPRRC, SLSC and Constitution Committee have regularly warned the Government against using skeleton Bills, against behaving as though consultation is a substitute for real parliamentary scrutiny and against using rule-making as camouflage legislation.

This Bill contains a particularly alarming example of the evasion of scrutiny in allowing the Treasury to revoke rules by SI by giving the regulator the power to make legally binding rules without any parliamentary involvement. That is completely unacceptable, as the Government must know. I strongly support Amendments 10 and 26, tabled by the noble Baroness, Lady Noakes, as a means of restoring some proper scrutiny. As the noble Baroness clearly explained, these amendments are not prescriptive as to the form of parliamentary scrutiny needed; they simply set out the principles that must guide construction of the scrutiny mechanisms. This is the equivalent of making an invitation to the Government that they should not refuse. It is an invitation to serious and substantive discussion about the way forward and it rightly, given the serious and far-reaching consequences, gives an appropriate incentive to resolve the issue quickly and collectively. I urge the Government to begin immediate cross-party talks on the issue.

By contrast with some of the amendments in this group, our Amendment 22 has modest and narrowly defined ambitions. As the Bill stands, Clause 3 lists the provisions of the CRR that the Treasury may revoke by regulation. There are 42 of these categories of provisions, all of them significant. Clause 3(4) makes these revocations conditional on their being or having been adequately replaced by general rules made, or to be made, by the PRA, or to be replaced by nothing at all if the Treasury thinks that that is okay. The Treasury appears to be the sole judge of what may or may not be an adequate replacement. In any event, Parliament is completely bypassed in this system. But all this means is that the Treasury can revoke provisions by SI before it has published the replacement rules or even decided what they will be. This sounds like a perfect recipe for disorderliness and uncertainty and it means that Parliament will have no opportunity to consider these new rules in a legislative setting. We get to see what has been dropped, but not necessarily what the replacement rules may be. This is another example of making law by making rules that Parliament has not been able to scrutinise.

Our amendment proposes a simple way round this. It would require any revoking SI to carry not only full details of what was being revoked but the full text of the replacing rules, except, of course, where no replacement was envisaged. These new rules can and will reshape important parts of our financial services regulatory regimes, and it is quite wrong that Parliament should be unable to scrutinise them.

I hope the Minister will be able to accept our amendment or to give us an assurance that revoking SIs will contain the full text of any replacement rules.

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[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

I have received a single request to speak after the Minister; I call the noble Lord, Lord Holmes of Richmond.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I thank the Minister for his very clear and thoughtful response. I have three brief questions for clarification. First, what plans, if any, are there for a Financial Services (No. 2) Bill? Any information on that would be helpful to the deliberations of the Committee today, and to the approaches noble Lords may choose to take as we move through further stages of the Bill.

Secondly, will he say what the Government’s position is on the timeliness of such scrutiny? Does it err more towards rear-view rather than real-time? Thirdly, in the light of the debate that we have just had, will he consider discussions potentially to lead to government amendments coming forward on Report? I think that noble Lords would agree that, on scrutiny and accountability, if the Bill is passed as currently drafted that would be at least somewhat unfortunate.

[Earl Howe (Con)]

My Lords, I intended the Committee to take some reassurance from the final sentences in my winding up when I said that I was very happy to continue the conversation with noble Lords on this theme between now and Report. I hope that noble Lords will take that as a signal that the door is not closed as regards a potential tweak to this part of the Bill.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

I hope that in his response the Minister will address himself directly to, first, the role that the Government see risk weighting and capital adequacy requirements playing in mitigating the micro and macro prudential risks of fossil fuel investments. Secondly, I hope that the Minister will tell us how the Government plan to up their game, so that we have in place a comprehensive transition plan from the fossil fuel industries of today to the green jobs of tomorrow. That second part will be critical in ensuring that we learn from the wrong done to former mining communities and that, this time, we make sure that stranded assets do not lead to stranded and abandoned communities. I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day three of our Committee deliberations on the Financial Services Bill. In doing so, I declare my interests as set out in the register. I will speak to Amendment 136A in my name, concerning environmental, social and governance—ESG—factors.

The rationale behind my amendment is quite simple: what is the point of profit if there is no planet to spend it on? In this amendment I am seeking to look at the funds’ billions of pounds of assets, under fund managers. It would probably be helpful for institutional investors and individuals to know a lot more about those funds and where their assets are invested. It is a very simple amendment, requiring the Secretary of State to make regulations to have fund managers report on how their funds—and, indeed, all the constituent parts of their funds—stack up against agreed ESG considerations.

The reason I stated it like that in the amendment is so that there can, I hope, be a public discourse around what all parties believe should be measurable and helpful when considering the operations and activities of these funds. The SDGs are obviously important—there is a reasonable level of global agreement around them—but there are other factors specifically relevant to certain sectors or regions of the UK. There could be a public debate, whereby the Secretary of State could consider what would form the particularities of the ESG for fund managers to report on.

I do not believe that the amendment would in any way fetter the market or overstep into the market—it certainly does not seek to—and nor does it seek to direct funds in one particular direction or another. What I hope it would do is throw light on the funds to enable far greater clarity of decision-making by investors, institutional or individual, into those funds. It is in no sense seeking to control or direct activity.

I hope the Minister will accept the amendment in the spirit in which it is being offered. It would aid a greater debate and understanding of funds and their operations. In some small way, it would indicate how we can move forward and have real-time analysis of these funds’ investments using many of the new technologies available to us, not least distributed ledger technology and elements of artificial intelligence, which can instantly adopt, analyse and report on the ESG performance of any fund and constituent part of it. The power that these new technologies affords us would not have been available three or five years ago, never mind a decade ago.

I ask my noble friend the Minister to consider both the positive impact that such a requirement could have and the deployment of new technologies to achieve the objectives set out in Amendment 136A.

[Baroness Noakes (Con)]

My Lords, most of the amendments in this group are about bank capital. I believe strongly that the setting of the capital requirements of individual banks should be about prudential risk to the capital of the banks and the resilience of the financial system as whole. The setting of bank capital should not get caught up in wider policy issues.

On Amendment 28, the level of exposure to climate-related financial risk should indirectly already be taken into account in the conventional capital-setting process. Climate-related financial risk is very unlikely to be a separate risk category for a bank. It is primarily a credit risk—the risk that borrowers will not repay loans—and it does not need to be separately considered. There may need to be adjustments made to banks’ evaluation of how credit risk will crystallise due to climate change but the essential elements—calculating the exposure at default and the loss that would arise if default occurred—are already in the system.

The impact of climate change on banks is very much an emerging area. I am sure noble Lords will have heard of the so-called biennial exploratory stress test, which the major banks need to submit to the Bank of England later this year. It will focus on how these risks will evolve under various scenarios, which have not yet been published by the Bank of England.

It is pretty unlikely that climate-related financial risk would have a major impact on current bank capital because the determination of bank capital contains buffers which are derived from stress tests that focus on the next five years. Therefore, the impact of risks from climate change working their way through credit risk is unlikely to find its way into bank capital in the short term. That is why the Bank of England’s exploratory stress test seeks to understand how this will evolve over a longer period. In addition to credit risk, there may be an element of operational risk, but that too should be capable of being captured by the existing rules for the calculation of operational risk.

These points are also relevant to Amendment 42, which tries to get climate-related financial risk into credit ratings. I am sure that the credit rating agencies need no reminders about any kind of risk and I would expect the biennial exploratory stress test to be an important input to their thinking on how their ratings will evolve. But, again, this will be over time and not something that is done immediately.

Amendment 28 seeks to ensure that disclosure requirements are also taken account of in setting bank capital. It would be wholly inappropriate to include compliance with disclosure requirements in the calculation of bank capital requirements because disclosure can never have an impact on the amount of capital that a bank needs to keep. It is an extraneous consideration that should not feature in the determination of prudential capital. I have absolutely no idea on what rational basis capital requirements for individual banks could be adjusted for the climate change objectives of the Government, which also features in Amendment 28.

As the noble Lord, Lord Oates, has explained, Amendments 31 and 32 would require mandatory risk weights for exposures related to fossil fuel; namely, 150% for existing exposures and 1,250% for new funding. These are both penal and unrelated to the underlying credit risk. I accept that funding fossil fuel exploration might well carry higher risks in the future than it does currently, but that will be reflected in banks’ evolving lending policies, including pricing for risk, and in the risks that are reflected in how they calculate credit risk-weighted assets.

Risk weighting is about loss at default and these amendments are suggesting that there could be a total loss at default; that is the particular implication of the 1,250% risk weight for new exploration. Neither assumption is realistic. Banks do not lend in situations where default is likely or total losses will occur, and I did not understand the reference to 100% equity funding in the explanatory statement: banks lend money; they do not make equity investments in the companies with which they deal.

In general, corporate borrowing is not linked to specific activities. At the weekend, when I was at home thinking about what I was going to say on these amendments, I found a copy of Shell’s most recent accounts, which I looked at to see how its balance sheet was made up. Most of Shell’s debt is in generic corporate bonds, rather than for specific activities within Shell. Like other major oil and gas companies, Shell has a mix of activities, including those which the green lobby will approve of.

As drafted, by reference to

“exposures associated with the funding of existing fossil fuel production and exploitation”,

the amendments are probably ineffective because lending is not likely to be hypothecated in the way the amendments assume. I should also say that Shell, as a corporate borrower, currently has long-term credit ratings of A+ and Aa2, which imply a low risk of default and therefore a relatively low likelihood of loss needing to be taken account of in the way that assets are risk weighted.

Even if these amendments were drafted in a way that was effective and made sense, I suspect that the only real-world impact would be that debt financing for oil and gas companies would be driven out of the London market. Why on earth would we want to deprive the City of London of relatively low-risk, profitable business?

--- Later in debate ---

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this debate on the second group of amendments and I declare my interests as in the register. I will speak to Amendment 126 in my name and, before I do so, say it is a pleasure to follow the noble Baroness, Lady Bowles of Berkhamsted. I congratulate her on the way that she introduced the group.

My Amendment 126 offers a structure of regional mutual banks, which are successful in other nations but not so present in the UK. With the current situation apropos Covid and the current economic outlook, it seems timely to reconsider the whole concept of mutuality via the structure, as set out in this amendment, of regional mutual banks. If we get this right, it would seem to play very much to the levelling-up agenda, to the regional agenda and to a more collaborative, connected and closer relationship between lender and lendee—with both sharing a part of the journey in whatever endeavour, be that individual or SME.

Elsewhere in Committee I have raised, and will raise later, issues around financial inclusion which are a stain on so many of our institutions and lives. But this is not a question just for individuals shut out of our financial services system; it is a question for the underbanked as well as the unbanked. It is also a question for SMEs, unable to get the lines of credit they require to do what SMEs do best: grow the economy for the benefit of their employees and communities—for the benefit of them all. In Amendment 126, the consideration of regional mutual banks goes to all these points.

Similarly, it could be the basis for a rebirth in this country of true patient capital, which is much in existence in other nations but not, perhaps, so much in recent years in the UK. We may also wish to consider changes to the rules around pension fund investments, which could come through such vehicles as regional mutual banks. We are all aware of the names of some famous and successful international pension funds—Ontario Teachers, to give one example. Why do we know about it, when most people perhaps do not necessarily know about our large pension schemes? It is because of the current rules and approach when it comes to where all that potential investment can be deployed.

Again, the amendment suggests that the whole question of capital adequacy should be considered. If we have a structure with a different funding model, leaning more towards patient capital, should we consider whether the current capital adequacy rules are indeed adequate for such institutions? Are they in fact acting as a barrier, a blocker, to the development of regional mutual banks? With such structures, the amendment seeks to probe a reconsideration of risk and risk profiling when it comes to these kinds of banking operations. The amendment also seeks to look at other social, economic or political limiting factors which may be out there.

Finally, I hope my noble friend the Minister will agree that Amendment 126 offers a helpful suggestion in terms of the seeding of such regional mutual banks. Public finances have rarely been as tight as they are right now; everybody understands that. Perhaps dormant assets could be used to act as some seeding to see where we could take the whole concept of regional mutual banks.

As we come out of Covid, it seems an opportune moment to reconsider, reimagine and potentially reignite the whole concept of mutuality throughout our society, which was so successful and so beloved in previous generations. I hope my noble friend the Minister will agree that Amendment 126 offers a positive, creative structure worth considering for the future. Regional mutual banks could play a key part in the Covid rebuild and in future, as yet unwritten, success stories.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange, the debt charity. I put my name down to speak in this group of amendments because they give me an opportunity to raise a wider concern about the access we need to low-cost credit. In fact, this fits in very closely with points already made by the noble Baroness, Lady Bowles, on Amendment 29 and the noble Lord, Lord Holmes of Richmond, on Amendment 126, and his important point about financial inclusion and the need to make sure that we do not forget that. I am looking forward to the comments to be made by the noble Baroness, Lady Kramer; she will also touch on these issues when she comes to speak.

When responding to a group in an earlier debate, my noble friend Lord Tunnicliffe mentioned that he grew up in a household where poverty was a constant worry. He mentioned the “jam jar economy”, which often characterised low-income households. It was cash-based: putting small amounts of coin away for future expenditure. Indeed, research a few years ago showed the surprising conclusion that the lowest paid in our society were often the heaviest savers on many measures, mainly because they had to be. It was done outwith traditional credit sources and topped up where necessary by house-to-house lenders, which were often a vital lifeline.

A key problem I want to highlight is the need to solve the problem of how to expand low-cost credit. My noble friend Lord McNicol, when he was speaking in an earlier group, mentioned the problems revealed by a very interesting report by the University of Edinburgh Business School on the financial health of NHS workers—people who were in employment but receiving low wages. It was based on real-time open banking figures. It showed across the 20,000 or so NHS workers who were surveyed that far too many were heavily reliant on a regular basis on persistent overdrafts and high-cost credit, often borrowing to meet the emergency needs they had from time to time, at APRs of well over 1,000%. The report makes for very interesting reading, and I hope that the Government will have access to it when they come to consider these issues further.

I know that the Government are concerned about this and that their financial inclusion work recognises, as previous Governments have, that the availability of low-cost credit is a major blockage to financial well-being. As the noble Lord, Lord Holmes of Richmond, said, it also affects the ability of SMEs and sole traders to operate successfully in a difficult economy.

I hope that the Minister can say a bit more about the plans the Government have when she comes to respond. I know that the Government will pray in aid the idea that credit unions will often be the solution; they have been mooted so often in the past but do not seem to grow. Other countries have other models—Germany has its particular banks focused on the local economy and America has the Community Reinvestment Act—which have solved the problems. Is there not time to consider things that might operate more successfully here in the UK?

None of the individual measures outlined in the amendments in this group, welcome though they are, will solve low-cost credit and the drought that we are suffering from. But they make the point well that the regulatory measures in the Bill should not restrict much-needed support from institutions, banks and other organisations such as credit unions to help those who need to borrow but who cannot do so at the rates or in the period of time which are often required by our major institutions. I look forward to the Minister’s response.

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[Baroness Noakes (Con)]

My Lords, in moving Amendment 44 I shall speak to Amendment 45 in this group. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lord Holmes of Richmond for adding their names, especially as I had not expected to have any companions at all for these amendments, which are pretty technical and lack the sex appeal of some of the other groups of amendments.

These amendments concern what are known as tough legacy contracts in the context of the transition from Libor, which is expected to complete by the end of this year. The cessation of the use of Libor was first announced in 2017, and banks and other financial services firms have been working on transition since then. A principal focus for financial services firms has been on ensuring that new loans and other transactions do not reference Libor or, if they do, that there is legally watertight fallback language allowing the use of alternative rates once Libor is no longer available. This may sound easy, but I can assure the Committee that it has not been easy, and work is still ongoing. However, that is not the focus of these amendments, which are targeted at past contracts that reference Libor.

Despite considerable efforts, which will continue throughout this year, the industry has been clear from the outset that it is highly likely that there will be contracts at the end of 2021 which either have no fallback provisions or where the fallback provisions are effectively inoperable or would result in an uneconomic or unintended outcome. The regulators have been clear that the industry should solve this problem itself through bilateral or multilateral negotiations, and very considerable progress has been made. In particular, there is a revised ISDA protocol that will deal with the vast majority of derivative contracts. However, it is the case that not all contracts can be dealt with before the end of the year and possibly not at all, because there will be cases where there is no realistic means of proactive restructuring or where restructuring attempts fail.

The contracts in this legacy bucket are very varied. At one extreme, there are complex bonds which have multiple parties in many different jurisdictions, which range from hedge funds to Japanese retail investors. Getting agreement from all parties, which some bond documentation requires, is not feasible. At the other end of the spectrum are individual or SME borrowers who, for various reasons, such as default or dispute, may refuse to engage with the banks or lenders. The banks are particularly sensitised to the conduct issues that can arise if individuals or SMEs are unduly pressured to engage, especially in the context of the economic and health stresses of Covid-19.

The good news is that the regulators and the Treasury have accepted that there is a problem that needs to be solved, and this Bill contains some changes to the benchmarks regulation which will allow some legacy use of Libor, together with the ability for the FCA to set out how the benchmark is to be determined—the so-called “synthetic Libor”. These provisions have been widely welcomed by the financial services industry. However, the new provisions leave some legal loose ends, which I seek to address with my amendments.

Amendment 44 seeks to ensure that there is continuity of contract, so that any contracts transferred to synthetic Libor under the new provisions of the benchmark regulations are treated as if references to Libor were to the synthetic Libor. This is important, because a counterparty could well argue that the terms of the contract meant that, if Libor became unavailable, the contractual fallback provisions should be used instead of synthetic Libor. In the bond markets, I understand that this will in effect result in a floating rate bond becoming a fixed rate bond. In other commercial lending, the fallback will in many instances be some form of “cost of own funds”, the exact meaning of which is likely itself to be the subject of litigation. I understand that derivative contracts that cannot be restructured have no effective fallback language. I believe that a continuity of contract provision such as that provided in my Amendment 44 is essential to provide legal certainty for these situations.

Amendment 45 is a companion amendment, designed to give safe harbour from any legal claims. The opportunities for litigation could be significant, whether vexatious or not. In the retail and SME space there could even be a new opening for the dreadful claims management companies.

I should say that I claim no particular merit for the drafting of the amendments; I know that parliamentary counsel have their own ways of doing things, were the Government minded to accept the principle of these amendments. I have been assisted in the drafting by the International Capital Market Association and specialist City lawyers involved in its working groups. This has in turn drawn on the drafting of similar provisions by ARCC, the American Alternative Reference Rates Committee, for New York law. Given the international nature of some of the markets affected by tough legacy contracts, I believe the UK would be wise to act in a similar manner.

Since I tabled my amendments, the Treasury has issued a consultation paper on continuity of contract and safe harbour, which is a bit behind the pace but none the less very welcome. I know that the consultation period will run until 15 March; I hope my noble friend the Minister will update the Committee on how the Government now see this progressing.

The problems of continuity of contract and safe harbour cannot be dealt with by the FCA or the PRA because that is beyond their powers. The solution needs to reach beyond “supervised entities”, as it is not just banks and the like that need to be covered. The problems can be solved only by primary legislation. If we lose the opportunity of this Bill, I fail to see how the Government will be able to act, given that the deadline of the end of this year will be rushing up on us. Financial Services Bills are not an everyday occurrence —thank goodness—and it is important to understand how the Government will progress this important issue. I will be especially interested in my noble friend’s comments on how the Government see this. I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on this group; I declare my interests as set out in the register. It is an even greater pleasure to follow my noble friend Lady Noakes. She declared that she thought she would be a solitary performer on Amendments 44 and 45 because of their technical nature; they are certainly technical, but none the worse for it. They are absolutely necessary, as she set out. Almost irrespective of what happens beyond this point—much needs to happen—she has done a great service in throwing such a spotlight on this issue for everyone involved in this phase.

Like my noble friend, I was concerned about the seeming inoperability of many fallback positions in which various entities will find themselves. Like her, I ask my noble friend the Minister to look at that point. Similarly, can my noble friend the Minister say where the thinking is on synthetic Libor? Does she think that it is complete and that all reasonable eventualities have been considered within that construction? Alongside that, what representations has Her Majesty’s Treasury received, not least from the City and in relation to derivatives, which my noble friend Lady Noakes pointed out are a particularly sticky part of this issue?

On a previous group, my noble friend Lady Noakes described herself as a cynic—not a bit of it. She is certainly a healthy sceptic, and all the better for it.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on day four of proceedings in Committee on the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I want to speak to Amendment 51, standing in my name. The purpose of this new clause can be simply stated: what is the purpose of the KYC—“know your customer”—requirements? It is one of the top TLAs—three-letter acronyms—in financial services, but is it fit for purpose? Does it achieve what we would want? Does it feel modern in outlook? Does it feel inclusive? It not only goes to the heart of a number of other amendments in this group; it really is a key underpin, and the adoption of this amendment would transform our KYC system and approach in this country. We have to ask those questions: what do want KYC for; what does it need to contain; when do we need it, and in what form?

Amendment 51 seeks, on passage of the Bill, a review of KYC requirements that considers a number of elements in order to seek to transform our approach to KYC. My first point concerns the question of inclusion, and I draw this broadly. Whom do we want to come within, in what form and through what means? For example, asking for paper documentation seems not only outmoded but somewhat exclusionary. Where is the level of efficiency in the current provisions? We have the ability to have “atomic settlement”. The current KYC feels a million miles away from a settlement in a millionth of a second. My final point addresses exactly that question of outdatedness. We have one of the greatest financial services sectors in the world. The big bang in the 1980s revolutionised the City of London, but it goes much beyond that when we consider our role in fintech, not just in London but across the UK, and the Kalifa review on that very subject, published only last week. We are leading-edge in so many ways when it comes to our financial services. KYC in no sense reflects, represents or leads that technological position.

If this amendment were to be seriously considered, if not adopted, we could look at different means of ensuring KYC. We could look at attributes and elements that would assist and give real-time assurance, giving elements to those who need them—things which operate absolutely in real time and are to be relied on, rather than bits of paper, bits of supposed identification, which hark not from a 20th-century but a 15th-century approach to identification. That brings me, finally, to the whole question of digital-distributed ID, which I will speak on later in Committee. That goes to the heart of so much of solving the KYC puzzle. If we could deliver an effective and efficient distributed ID system for individuals and corporate entities, we would transform the position regarding KYC.

I look forward to hearing the comments of my noble friend the Minister on Amendment 51.

[Lord Sikka (Lab) [V]]

My Lords, I speak to Amendment 51A, which invites the Government to reduce the number of anti-money laundering supervisors so that we can have consistent application of standards and effective regulators.

Dirty money is a huge danger to every country on this planet. The full extent of dirty money sloshing around in the UK is not known, although some authorities estimate that around £100 billion a year may be laundered through our banking and financial system. Transparency International’s report, Hiding in Plain Sight, examined 52 cases of global corruption and noted that despite a plethora of form-filling and regulators, some 766 UK-registered business entities were involved in laundering stolen money.

The threat of money laundering to national security is well documented in the Intelligence and Security Committee’s July 2020 report, Russia, which stated that

“the arrival of Russian money resulted in a growth industry of enablers—individuals and organisations who manage and lobby for the Russian elite in the UK. Lawyers, accountants, estate agents and PR professionals have played a role, wittingly or unwittingly, in the extension of Russian influence, which is often linked to promoting the nefarious interests of the Russian state.”

Large sums of dirty money cannot be moved or concealed without the active involvement of accountants, lawyers, and financial experts. These enablers must be tackled, and without effective regulation that is not possible.

However, the UK’s fragmented regulatory system for dealing with money laundering is highly deficient. There are 25 anti-money-laundering supervisors. These include the Financial Conduct Authority, HMRC, the Gambling Commission and 22 other bodies, mainly trade associations connected with accountancy, audit, bookkeeping and legal and notarial services. The list of 22 includes bodies such as the Association of Accounting Technicians, the Association of International Accountants, the Institute of Certified Bookkeepers, the Institute of Chartered Accountants in England and Wales, the Law Society and sundry other trade associations. Having twenty-five supervisors results in duplication, waste, inefficiency, poor co-ordination, inconsistency and obfuscation.

In September 2016, the Committee on Standards in Public Life, in its report, Striking the Balance: Upholding the Seven Principles of Public Life in Regulation, stated that the seven principles of public life apply to all regulatory bodies, and the Government agreed. These include independence and public accountability, but for some reason the Government do not apply these principles to anti-money laundering supervisors. Accountancy and law trade associations have no independence from their members. In any regulatory system, there is a concern that regulators would be captured by those who are to be regulated, but that is the starting point in AML supervision by trade associations.

In October 2011, the Government announced that they would make quangos more democratically accountable, but they have failed on that front too. Of the 25 AML supervisors, 22 are not subject to the freedom of information law, even though they are an explicit arm of the state. Perhaps the Minister will be able to explain this anomaly. Their exclusion from FOI means that the public have no opportunity to scrutinise their practices.

The Government’s faith in regulation by trade associations is routinely punctured by the Government’s own reports. In October 2017, a joint report by the Treasury and the Home Office, entitled National Risk Assessment of Money Laundering and Terrorist Financing 2017, summed up key risks around the accountancy sector:

“complicit accountancy professionals facilitating money laundering; collusion with other parts of the regulated sector; coerced professionals targeted by criminals; creation of structures and vehicles that enable money laundering; provision of false accounts; failure to identify suspicion and submit SARs; and mixed standards of regulatory compliance with relatively low barriers to entry for some parts of the sector.”

The report went on:

“Accountancy services have also been exploited to provide a veneer of legitimacy to falsified accounts or documents used to conceal the source of funds. For example, law enforcement agencies have observed accountants reviewing and signing off accounts for businesses engaged in criminality, thereby facilitating the laundering of the proceeds. In many cases accounts have been falsified by criminals and unwittingly signed off by accountants, while in others accountants have been assessed to be complicit”.


That is the state of money laundering and the world of accounting.

However, rather than consolidating the number of regulators and thereby securing consistent application of standards and law, in January 2018 the Government created a new body called the Office for Professional Body Anti-Money Laundering Supervision, better known by the acronym OPBAS. At considerable cost, it became a “supervisor of the supervisors” and oversees the 22 trade associations. The formation of OPBAS is an acknowledgement that all was not well with the regulatory role of trade associations.

A year later, on 12 March 2019, the OPBAS director of specialist supervision said:

“the accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny.”

The OPBAS Director went on:

“We found that some did not fully understand their role as an anti-money laundering supervisor. 23% had no form of supervision. 18% had not even identified who they needed to supervise. Over 90% hadn’t fully developed a risk based approach and had not collected all the data they needed to form a view about their riskiest members and their services. Supervision was often under resourced – and in some cases, there were no resources.


We found that for many supervision wasn’t important. It was only an add-on. This means it often wasn’t on the agenda and for around half, there was insufficient senior management focus. For 20%, it wasn’t overseen by the governing bodies. In some of the professional bodies, where supervision had been outsourced to another provider, there was minimal oversight of the work being done.”


The director also said:

“We also found that in all but 2 professional bodies, processes for handling whistleblowing were inadequate. We found that 56% of professional body supervisors had no whistleblowing policy in place at the time of our assessments.”


There you have it—a powerful indictment of the folly of relying upon trade associations for regulatory purposes. They do not want to be robust regulators because of the concern that “their memberships will walk”.

--- Later in debate ---

I want to make a final argument in support of my amendment. As things stand, we expect the next general election to be held on 2 May 2024. Since joining your Lordships’ House some 14 years ago, I have witnessed a few times the playing out of the so-called wash-up procedure in the run-up to a general election, during which a certain amount of political horse-trading goes on to agree which bits of policy in the pipeline will be sacrificed to clear the parliamentary decks before the election recess. I do not want this to happen to statutory debt repayment plans. If the Minister undertook to persuade the Government to accept my amendments, this unintended pitfall would be avoided. I hope that he will give serious consideration to the whole case that I have made. I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in the debate on this second group of amendments. I declare my interests as set out in the register. It is also more than a pleasure to follow the noble Baroness, Lady Coussins, and the elegant way in which she introduced the amendments. I would certainly have added my name to her Amendment 67 had I had any ink left in my pen. I can only express regret that my name is not on it, as it elegantly and excellently expresses her intention, as she has done on her feet today.

In many ways, this is the most important group of amendments that we are considering in Committee. It takes me back to 2017, when we debated the Financial Guidance and Claims Bill, as it was then, and our discussions about duty of care and financial inclusion. It all rings true in these amendments and in our earlier discussions in Committee on financial inclusion objectives, not least for the Financial Conduct Authority.

I am grateful to the Money Advice Trust, Macmillan and StepChange not just for their briefing, advice and commentary for these amendments but for the work that they and all the organisations involved in the debt space do day in, day out—often unsung—dealing with people who find themselves in some of the starkest situations. Those organisations step in, and they deserve our thanks, praise and recognition.

I shall cover Amendments 53, 68, 69 and 111 in my name. I shall also touch briefly on Amendments 54 and 70 in the name of my friend, the noble Lord, Lord Stevenson, but I shall be mindful not to eat his tea. I feel somewhat nervous speaking before him, with all the expertise he has in this area and in view of his excellent chairmanship of StepChange. This Committee and our nation owe him a tremendous debt for the work that he has done in the area of debt.

Amendment 53 is relatively straightforward. It focuses on the provision of debt advice for those who would fall within the scheme. It hints at the wider point of financial education, not just in schools, as we have discussed in the past, but broadly, throughout life. It was not possible to craft an amendment to the Bill on financial education the way I would have intended. However, I believe that Amendment 53 speaks to that specific intention while having general applicability, broader than just those within the scheme.

Amendment 54, in the name of my friend the noble Lord, Lord Stevenson, is an excellent probing amendment, and I shall leave him to walk us through it. Amendment 68 has elements of Amendment 67, in the name of the noble Baroness, Lady Coussins. It sets out the provisions of the SD scheme and a timetable for its implementation. I am not entirely sure why I opted for December 2024 as the end date for when people would have to have been taken up into the scheme. I may have had the view that the Johnson Administration would go the full five-year distance. On balance, I am probably minded to go with the noble Baroness, Lady Coussins. May is probably a better date; it is certainly reasonable and achievable and gives the right amount of space, with the right amount of road, to enable this scheme to get up and running.

Amendment 69 seeks a consultation on how funding for advice will operate under the scheme and is relatively straightforward. Amendment 70 is, without question, one of the key amendments in this group. It was handsomely set out and I will not eat my friend’s lunch in doing so again. By setting out particular groups, not least SMEs, those with protected characteristics and charities, the noble Lord has done an excellent job in focusing on the key groups and on how such a review should be structured.

Amendment 111, my final one in this group, is concerned with so-called lead generators. In many ways, it goes to the essence of the human condition: the ebb and flow; the give and the take. What we witness with lead generators is, all too often, those taking from those who have the least. The aim of the amendment is straightforward: to end the misery and mental stress that the practice of lead generation, as currently conducted, causes to tens of thousands across the UK. What are lead generators? In essence, they use online tools to crawl the online world in search of those who have entered that environment to try and find solutions to their current debt difficulties. They then serve up the individuals they have captured, if you will, to organisations which seek to “advise” and “help” them. This area is riddled with misleading statements, misrepresentation—

[The Deputy Chairman of Committees (Lord Caine) (Con)]

The Committee will now adjourn for five minutes.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Caine) (Con)]

My Lords, before I invite the noble Lord, Lord Holmes, to complete his comments, I point out that I completely omitted to put the question when the noble Baroness, Lady Coussins, moved her amendment. For clarity, the question before the Committee is that Amendment 52 be agreed to. I call the noble Lord, Lord Holmes of Richmond.

[Lord Holmes of Richmond (Con) [V]]

As I was saying, lead generators are involved in misleading and misrepresentation by holding themselves out as organisations such as the Money Advice Trust or StepChange, or representing themselves as government to pull in for financial gain those who sought help for their debt difficulties. It is a pernicious practice, preying on those who are, without doubt, extremely vulnerable as a result of debt. It is unfortunate that the arena for their taking is the world wide web—one of the greatest gifts to humanity from one of the greatest of great Britons, Tim Berners-Lee. It is such a tragedy that his world is populated by these tawdry takers.

Amendment 111 would amend the FSMA to bring lead generators into the world of regulation to end this pernicious practice and to address the current asymmetry in FCA regulation: if you are introducing creditors that is a regulated activity; if you are introducing a debt advice service or the like, that is currently unregulated. The problem is large: StepChange and the Money Advice Trust estimate that at least 10% of those in need who seek their help and that of other debt advice services are caught up in and misdirected by such lead generating practice. That is an extraordinarily high figure.

We often see the world in a grain of sand when we consider personal testimony. One man said: “I am caught up in this world of these people. I am called, if not once, five times a day. Fortunately, I’ve managed to sort out my debt problems, but this harassment from these organisations is almost as bad as the debt itself. It’s having a detrimental effect on my life; it’s having a detrimental effect on my mental well-being.” That is the outcome of this mendacious practice, of this fakery and falsehood, from these tricksters and takers.

When my noble friend the Minister considers Amendment 111, would he agree that when individuals look for support in their hour of need as a result of a debt situation, they should find help, not harm? I am delighted that the amendment has the number 111; it is a single Nelson of an amendment. It is a single amendment with a single intention: for it to pass to make one single, simple change that will help hundreds of thousands. Will my noble friend the Minister channel his inner Nelson and give Amendment 111 its victory?

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I declare my interest as a former chair of StepChange Debt Charity. I thank the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, for their kind words about the work we have done with StepChange and all the other groups involved in supporting the repayment of debt and the management of unmanageable debt. It has been a pleasure to work with them and I have listened to their words very carefully, but it has also been wonderful, over the years I have been working on this issue in your Lordships’ House, to see the number of people who have become interested in it and who are prepared to join in and support it grow. It is now a very solid group with very firm views about how things should move forward, as we just heard.

I was very struck by what the noble Lord, Lord Holmes, said about the way people prey on those who have problems with debt. When I was working at StepChange we decided to change the name from the rather uncomfortable Foundation for Credit Counselling, which no one ever used. It was not a foundation, we did not deal with credit, and we did not counsel. It was a problem to get across what we did do, but we decided to be bold, as one is when coming to a new organisation and thinking about how you might change it. We decided to go for a name that took us away from any descriptive elements, and came up with StepChange.

One thing that we did not expect, which plays back to what the noble Lord, Lord Holmes, said, was that within 24 hours of our name being announced to the world there were between 15 and 20 groups preying on the same group of people we were trying to help, in exactly the way that the noble Lord described: they had changed their names to variations on StepChange. They also changed their colour coding, the whole look of their websites and the whole way that they approached potential customers. It was a wonderful example of the difficult area in which we operated. Here we were, trying to help people who were desperate to repay the debt that they had got themselves into. They were, by and large, decent, ordinary people for whom something had gone wrong with their lives and as a result they were spiralling into unmanageable debt. Yet here were these other companies trying to make money out of them, as the noble Lord explained. It was just awful, and to do so in a way that showed that they were watching how we operated in the market and were prepared to copy our techniques to get people to pay them money which they could not afford in order to get out of debt, was an extraordinary basis.

That leads into the amendments in this group, which are largely about trying to work with the Government in their good and well-thought-through plans, which are slowly coming to fruition. Perhaps they could go a little faster, but that is part of this discussion. My principal point is that I want us to support what the Government are doing because they are on the right track. We would like to do anything that we can to help them.

I have two amendments in this group and would have signed others, but I did not need to because they have a lot of support in other areas. Amendment 54 probes the nature and content of the regulations that will establish the statutory debt management scheme, which is complementary to and foreshadowed by the debt respite scheme mentioned by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes of Richmond. Amendment 70 calls for a formal review of the debt respite and statutory debt management schemes within a two-year period after Royal Assent. It looks very straightforward on the surface but when the Minister responds I am sure that he will realise where the amendment is trying to take him. It has the same impact as the points made by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, which is that we are a bit worried about the time that it has taken to get this scheme going. The idea was—

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I was not sure where the debate on short selling would go. I am broadly satisfied with the present rules that prohibit naked short selling and require that a short seller has identified where they will obtain the shares when delivery is required. There is a little bit of wriggle room in the identifying, which was very hard fought for by the UK when the EU regulation was being negotiated. Some would like it more relaxed so that there is a looser understanding of how the shares will be found; others would like to ban short selling altogether. I am not convinced that any significant change is needed in that area but, having negotiated the current compromise, I am both biased and happy for someone else to gather the scars on their back.

As the noble Baroness said, there has been additional interest in short selling because of the developments around GameStop and AMC shares, with some retail investors deliberately seeking to put a short squeeze on to hedge funds with large short positions. The shares became heavily promoted on internet sites and social media, and no doubt there are individuals who made poor decisions about investing as a consequence. Eventually, brokers took steps to curtail retail access, and therefore activity, which stopped extreme movements, but that also calls into question rights of retail access and whether there will be discouragement of things such as commission-free retail trading.

In the UK—and, indeed, the EU—we do not have such large net short positions as tend to be found in the US. That may well be due in part to the more restrictive requirements on the identification of where one is going to get the shares from, and stricter disclosure requirements. Retail access is not so well developed here, either.

I do not know whether the Treasury Select Committee has taken any evidence on this—it seems taken up by the Gloster review—but the chair of ESMA appeared before the corresponding committee in the European Parliament on 23 February. In that appearance, there was a suggestion that other things around the subject may need looking at—such as market abuse and best execution, which would be under MiFID II—rather than short selling.

The FCA website has a six-line generic statement, put up on 29 January, about “recent share trading issues”, warning about potential loss of money, that losses are unlikely to be covered by the Financial Services Compensation Scheme, and that broking firms are not obliged to offer trading facilities to clients, which covers the point about withdrawal of service. It tweeted a similar warning.

Here I should probably draw attention to my specific interest as a director of the London Stock Exchange. I know that a close eye has been kept on the situation, looking at additional analysis, possible additional monitoring and scenarios that could arise within our markets, and having discussions with the FCA, but that is all work in progress.

A lot of people seem to consider short selling fundamentally evil, but it is really just like ordering a book from a bookseller, paying for it, and getting it later when the seller has purchased it from the publisher. That is okay if you know there is a book and a publisher and you have not already been told that it is sold out. It is not okay when there is no book, and so on. That is the distinction between naked short selling, when you do not know whether the book is there, and having identified that you can actually get your hands on the book to fulfil the order. Broadly speaking, I am not sure that a huge overhaul of short selling needs to be looked at. If all these things are to be looked at, it probably needs to go beyond what is in the short selling regulation and look at how execution has to happen as well.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day five of Committee of the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I was keen to speak to the amendment in the name of my noble friend Lady McIntosh of Pickering—and have put my name to it—mainly because of the reasons set out by my noble friend and the noble Baroness, Lady Bowles. That is, given the position we are now in with financial services, it seems opportune to review this practice. In saying that, I agree with the noble Baroness, Lady Bowles, that it makes sense to see this as part of a wider review of a number of other market practices. Indeed, it reflects an earlier amendment that I put forward on day one on the opportune moment to review all our financial services regulations and regulators’ rules, given that our situation is so fundamentally different from what it was a matter of weeks ago.

On short selling, it is important to understand the difference between different markets, as the noble Baroness, Lady Bowles, eloquently set out. It is important for that to be understood, not least as a number of people’s understanding of short selling will have been informed by the earlier situation with GameStop on the exchange in the United States and the excellent film “The Big Short”—excellent unless you happen to be on the wrong end of that practice. However, it is different in different jurisdictions. Which jurisdictions would the Minister look at in considering potential better practices around the world? Would she also see this as a positive, opportune step to take as part of a wider review of all financial services regulations and the rules of our regulators?

[Baroness Noakes (Con)]

My Lords, I support the call of my noble friend Lady McIntosh of Pickering for a review of short-selling legislation, although I start from a very different position to her. As she explained, our short-selling rules were acquired via the EU, which is how they found their way on to our statute book. I believe that all EU-derived legislation should be reviewed at some stage; I am not sure this is the most pressing area, but it should certainly be reviewed.

When the EU introduced its short-selling rules in 2012, we had to follow, but it is far from clear that, left to our own devices, the UK would have introduced such rules. The FCA has been clear that the existing powers to trigger a ban on short selling would not be exercised lightly and the bar must be set very high. That must call into question whether we actually need the powers. The trouble with regulators is that, once they have powers, they never give them up voluntarily, even if they can never envisage when they would be used. A review would allow us to look at this again. We ought not to allow regulators to keep draconian powers to intervene in markets without very strong justification.

Against that background, I was particularly disappointed to see that the EU’s temporary—though extended several times—reduction of the threshold for notification of short selling, which expired when we left the EU, was almost immediately reinstated into UK law. That is not a good direction of travel.

There is nothing intrinsically wrong with short selling. It can provide liquidity to markets, improve bid-ask spreads and assist in price discovery; it also offers a route to hedging long-only exposures. There are, of course, downsides, including the potential for unlimited losses, so the risks have to be well understood and managed. We recently saw in the US that some hedge funds got their fingers burned on short selling GameStop shares due to action taken by amateur investors; but that merely highlights the need for sound risk management—it does not speak to short-selling itself being a problem or suggest that powers are needed for market intervention.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I start by expressing support for Amendment 79, introduced by my noble friend Lord Tunnicliffe. As the Woolard Review pointed out, the buy now, pay later issue is a hotspot at the moment and in need of urgent action. My noble friend’s amendment would require that the non-interest-bearing elements of lending under that regime should be regulated by the FCA, and we support that. I thank the Economic Secretary for the time given to us recently on this issue and I appreciate that this is not easy to regulate for. However, as my noble friend pointed out, there is time to get this right by the next financial year.

At heart, this looks like a consumer-friendly initiative—something we could all support. Credit-financed purchases have been with us for a long time, and there are some examples of activity in this field that could be damaged if the regulations to be brought forward are too aggressive. My noble friend mentioned employees, advances of salary and season tickets, and similar arrangements. However, the real profit motive which drives these schemes lies in the small print. Like so many similar schemes, these buy now, pay later schemes put pressure on customers to make unnecessary purchases, do not make effective credit checks, and there is evidence that they can cause mental health difficulties for those who sign up. I am sure that it would be possible to get this side of things properly regulated. However, what is less easy to regulate—although in fact it is far more damaging to hard-pressed consumers—are the penalties that get applied to missed payments and the excess interest that is loaded when payments are missed. In addition, compulsory insurance is often levied against default, links to loyalty follow-up purchases are imposed, and no real comparator APRs are somewhere available for those who wish to shop around before purchasing.

The focus placed on the FCA’s duty to promote competition rather than on a duty of care is an issue in play here. When the FCA was asked to regulate payday lenders, this House made it clear that its concern was the usurious rates of interest being charged, often many thousands of percentage points measured by APR. The solution favoured by the House was banning the products, which was why many of us were mystified by the FCA’s proposed solution of reducing the number of players in this market to a smaller number of well-capitalised companies—which indeed got the interest rates down, but only to around 1,000% APR, so consumers were left facing usurious rates. I hope the Minister will be able to reassure us that the approach that the Government are thinking of taking to buy now, pay later will not fall into the same trap as the payday lender regulations. The aim is consumer care and stamping out egregious behaviour, and not just promoting competition by allowing companies to rip off vulnerable consumers.

My Amendment 101, which I am grateful to the noble Lord, Lord Holmes of Richmond, for signing, is also about high-cost credit. As I said at Second Reading, it is high time we repealed the Victorian bills of sale legislation, which permits an egregious area of high-cost credit to continue and flourish outwith current consumer protection rules. Harm is being done.

Bills of sale are an early form of mortgage, aimed at goods and chattels and not property, which allow individuals to use goods they already own as security for loans while retaining possession of them. The use of bills of sale grew from fewer than 3,000 cases in 2001 to more than 30,000 in 2016. The number has dropped recently, but it is probably still in the order of 15,000 a year and it is going up. Ironically, bills of sale were legislated for before cars were invented, but they are used today mainly for what are called log-book loans, where a borrower raises cash on the security of his or her vehicle. Borrowers may continue to use their vehicle while they keep up the repayments, but if they default, the vehicle can be repossessed, sometimes from outside their front door, without the protections that apply to hire-purchase transactions or other consumer credit. It is also difficult to discover, when a car is being sold, whether it has a log-book loan attached. The register is kept by the High Court and it is not easily searchable. The new owner has no protection against losing the car if that loan has been defaulted on by the previous owner. This is just not fair.

Bills of sale are currently governed by two Victorian statutes, the Bills of Sale Act 1878 and the amendment Act of 1882—the statute was apparently so obscure in 1878 that it had to be re-regulated for in 1882. The legislation is described by the Law Commission as “archaic” and “wholly unsuited” to the 21st century. The current law creates hardship for borrowers and for private purchasers. The Law Commission argues that it imposes unnecessary burdens on lenders, and the lack of a proper chattels mortgage system restricts access to finance for unincorporated businesses and high-net worth individuals.

The great majority of bills of sale are taken out by borrowers who have difficulty in accessing other forms of credit. The current APR in a recent advert that I saw was 450%. The Law Commission says that the statutory form of a bill of sale as set out in the 1882 Act, which has to be followed absolutely to the letter, confuses borrowers rather than helps them to understand the consequences. It is clearly an area that should be cleaned up. A simple way, which is what I propose in my amendment, would be to repeal the Acts. While I accept that some people currently using log-book loans would be adversely affected by such a radical change, the greater harm lies in continuing the status quo.

I currently have a Private Member’s Bill on this issue, drafted by the Law Commission, which includes provision also for a goods mortgages scheme. Perhaps a way forward on this would be for the Government to agree to take on all or part of this Bill in the next Session using the special scheme for approving uncontentious Law Commission Bills. I would be happy to meet the Minister on this issue, if he could find the time, to see whether this would turn out to be a way forward.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak to this group of amendments. In doing so, I declare my interests as set out in the register. It is also a pleasure to follow the noble Lord, Lord Stevenson. Before I speak to Amendments 127, 131 and 136C in my name, I shall speak to Amendment 101, so eloquently introduced by the noble Lord, Lord Stevenson of Balmacara; Amendment 135, in the name of my noble friend Lord Leigh of Hurley, who is speaking after me so I shall not eat too much of his afternoon tea; and, briefly, Amendment 136F.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

[Lord Griffiths of Burry Port (Lab)]

My Lords, I will not detain the Committee long. I would not normally be seen near a finance Bill, largely because I do not have and do not ever expect to have any finance to bother me. Nor would I presume to discuss mortgage payments, since I do not have and never will have a mortgage to worry about. However, what I do have is some experience of people in all kinds of situations, good and bad, from the cradle to the grave.

It was a conversation with someone whom I knew well that made me aware of the truly dreadful situation that we are debating and that they found themselves in. Here was someone who was in a bad—a very bad —situation: they and 250,000 others. My noble friend Lord Stevenson of Balmacara and the noble Lord, Lord Sharkey, have done us a great service in highlighting the plight of these people and have worked out a reasonable way to help them. I am happy to leave the heavy lifting on the matter to them and, no doubt, other Members of the Committee who will chip in on the same side of the argument. They have made a compelling case in detail and with passion, all of which will help to disguise the extent of my own ignorance.

I simply must express my bewilderment at the way, when this subject was debated in the House of Commons, no less a person than the Economic Secretary to the Treasury gave voice to some rather misleading statements. He said, for example, that “mortgage prisoners” were paying a mere 0.4% higher than average mortgages. That figure has been mentioned more than once and is simply not true, according to the picture that I have seen painted in reliable reports from various quarters. He also suggested that when the mortgages in question were sold to “vulture funds” and other non-regulated bodies, the borrowers retained all the same conditions stipulated in their original agreements. From the conversation that I had and other cases that I have subsequently read about, that just is not the case.

The Government seem to have treated mortgage prisoners as cash cows, a means of paying down Treasury debt, after the decision to rescue the banks after the crisis of 2008. On the day that conversation arose, I thought that it would be a friendly interchange on the streets of my home town, with perhaps a mention of the unexpected good fortune of the Welsh rugby team—but it actually opened a can of worms. The person I was speaking to is considered to be a “problem borrower”, one of the people referred to by the noble Baroness, Lady Noakes. But my friend is a problem borrower largely because of the depredation of resources due to the fact that she has been paying mortgages over the odds for 10 years now. Even someone whose only qualification for speaking in this debate is an O-level in economics found himself smelling a rat as he spotted an egregious injustice being done to mortgage prisoners.

The amendments seek to correct this situation. They are balanced and sensible. Martin Lewis, who was quoted more than once by the noble Lord, Lord Sharkey, and is a true expert in this field, writes this:

“Mortgage prisoners are the forgotten victims of the 2008 financial crash. The Government at the time chose to bail out the banks, but unfairly—immorally—hundreds of thousands of their victims were left without adequate help, trapped in their mortgages and the financial misery caused by it.”


No wonder they are problem borrowers. He continued:

“And they have been forgotten ever since.”


The Bill and the amendments give us an opportunity to unforget them, to make good on past failures, and to bring justice to a situation yearning for it. The Minister is a decent and fair man but will of course be bound by the usual conventions in a debate of this kind. It would be good to hear him promise to go back to his department to try to find a way of bringing a little hope and cheer to those who suffer in this way.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in the debate on this first group of amendments. In doing so, I declare my interests as set out in the register. I congratulate the noble Lord, Lord Stevenson, on the manner in which he introduced the amendment. I also thank him for giving a wave to my Amendment 127 on this subject, which found itself a prisoner in a different group of amendments but was very much to the purpose of this group. Simply put, it would prohibit any more individuals becoming mortgage prisoners in this way.

--- Later in debate ---

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

My Lords, I will speak briefly to Amendments 108, 109 and 110 in the names of the noble Lords, Lord Hodgson Ashley Abbotts and Lord Knight of Weymouth. I broadly agree with everything they said.

The noble Lord, Lord Hodgson, in his introduction, referred to the level of dissatisfaction in our society: the threats from poverty, inequality and insecurity. I would say that these amendments are digging here into some of the depth of the problems that I referred to in my speech on a previous group and seek to provide some remedies. As he was speaking, I thought of meeting an USDAW representative in Sheffield referring to one of her members who had just come to her to seek a voucher for a food bank. The member was not, as you would expect as an USDAW member, unemployed; in fact, that member had seven jobs, but they were all zero-hours contract jobs and that particular week they had not delivered enough money for that person to feed themselves and their family.

However, it is important that we do not just focus—the noble Lord, Lord Hodgson, did not—on those who are in desperate poverty and inequality, as awful as that is. As he was speaking, I could not help but think of what the late, great David Graeber called—here I may be about to use what is unparliamentary language here, but it is a direct quote—“bullshit jobs”. The noble Lord referred to people’s desire to get meaning, to feel that what they are doing, how they are using their time and talents, is worthwhile and contributing to society. Indeed, a failure to acknowledge and understand that—a focus purely on the pounds, shillings and pence—is at the root of a lot of our problems: the financialisation, to which the noble Lord, Lord Knight, referred, of our entire economy—not just the financial parts but the real economy, the care economy, the public service economy.

The noble Lord, Lord Knight, referred to managing things in a different way. I point again to New Zealand’s living standards framework, that guides its Treasury—based on a system not that dissimilar to our own—where they judge the quality of work, people’s security, the quality of the environment and the economy all together and seek to manage them to a stable, secure, decent whole.

These are important amendments and crucial principles, so I wanted to speak briefly in favour of them.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak to this group of amendments. In doing so, I declare my interests as set out in the register. I shall speak particularly to Amendment 122. It is evident that employee share ownership is a positive force within our economy, and speaks so much to the current Covid environment and what kind of economic sector, work and business basis we can have to our economy as we built out of Covid.

It is no surprise that Sir Nicholas Goodisson, after taking the London Stock Exchange through the big bang and seeing some of the early privatisations, then moved on to a role heading up the Wider Share Ownership Council. He saw the benefits and the positive impact that it had for people to have a stake in something, and there could be no better example of that than employees having a stake—a share—in the company for which they work on a daily basis.

I believe we will see more innovative models of employee ownership coming through. The EOT, for example, is still very much in its embryonic phase but it is a very positive concept and construct. There will be further developments in this area and I believe Amendment 122 sets out the case very well that when employees have a share, a stake and a say in the business for which they work, it benefits all concerned.

[Baroness Kramer (LD)]

My Lords, first, I have to correct an error I made in the last group of amendments. I referred to the HBOS Reading scandal when I was talking about the Promontory report, and of course I should have been talking about the RBS GRG scandal; I am afraid I got my scandals wrong. My apologies for that—there really are too many to choose from. I hope that one day I find there are no choices; that would be a very good situation to be in.

I find this group of amendments wonderfully refreshing and a very important change of direction. Amendments 108, 109 and 110 in the name of the noble Lord, Lord Hodgson, build on the concepts that we already have in the UK Stewardship Code but take that further. In many ways, one can see a relationship with the duty of care amendments that we talked about earlier in this debate. That duty of care was focused on customers but in many ways that is now extending that perspective to employees. I find that exciting and worthwhile.

I and my colleagues in the Liberal Democrats have long talked about the need for a very different social contract between employers and the workforce. Very often that workforce may not be an official workforce in the formal sense; it may be people who are self-employed and working freelance but who in effect are working very closely with an organisation. The whole of that workforce needs a very different social contract as we go forward into a different era.

I think we both have different standards about how we treat each other and different expectations. However, we are also about to go into a period of transition to the digital age. That will be disruptive. It creates real issues for a large swathe of people and we cannot passively step back and look at a group of people just as collateral damage as we make that transition. The obligations to the workforce have become far more significant than they might have been in a fairly steady and static era when everything was expected and was not changing very significantly.

I have long been a fan of what is loosely called triple bottom line accounting—and have probably talked about it too often in this House—whereby issues such as the environment and the social impact along with the financial impact are measured when we look at both individual accounts and when we look globally at a nation’s accounts. We had earlier amendments around the issue of well-being, which are well related to all that.

I was excited to hear the example of New Zealand that the noble Lord, Lord Knight, detailed to a fairly significant degree. Nearly 20 years ago I spoke to a conference in Auckland around these issues as New Zealand was making its decision to revisit the way in which it managed its national accounts and looked at corporate accounts. I notice that very often, when we look at an English-speaking country with close ties to the UK, we find it much easier to absorb the examples and to treat them in a sense as a pilot from which we can learn. I therefore hope very much that the principles in these amendments will be enhanced.

Like the noble Lord, Lord Hodgson, and my noble friend Lady Bowles, I am a great believer in employee share schemes. There is always a downside to be aware of. If something goes wrong in a company, you want to make sure that employees have also built other pension resources, have diversification and all those kinds of opportunities. A principle that is held as very important for senior management ought to be extended down throughout the employee base. Where you have ownership, you have a voice, and having a voice is important both in empowering people in their everyday life as a workforce and in making sure that they drive the direction of the company they are working for. We all know that the old-fashioned view that all that matters is the shareholder is essentially part of the past, and I very much welcome all these amendments as part of the future.

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Moved by

[Lord Holmes of Richmond]

112: After Clause 40, insert the following new Clause—
“Designated artificial intelligence officer
(1) The Secretary of State must by regulations made by statutory instrument provide that companies operating in the financial services sector who use artificial intelligence (“AI”) must have a designated AI officer.(2) The AI officer under subsection (1) has responsibility for ensuring the—(a) safe,(b) fair,(c) unbiased, and(d) non-discriminatory,use of AI.(3) The AI officer under subsection (1) also has responsibility to ensure that data used in any AI technology is unbiased.”

[Lord Holmes of Richmond (Con) [V]]

My Lords, in moving Amendment 112 I shall speak also to the following 10 amendments in the group, through to Amendment 136E, which is also in my name. I declare my interests as set out in the register and thank other noble Lords who have signed up to speak.

There are 11 amendments in the group and I should like to begin by making some broad comments about the overall theme. The group’s headline is fintech, financial technology, which covers a number of areas in and around that subject and demonstrates the connectivity between all the elements of 4IR, the fourth industrial revolution, including new technologies, and how they interact with one another in the context of financial services. They include AI—artificial intelligence —DLT or distributed ledger technology and blockchain, just to mention some that I will be coming on to discuss as we reach the amendments.

The Government have had a good story to tell on fintech since 2010—and indeed before: the Blair Administration were very positive around the UK’s opportunity and the potential that we have in this area of fintech. Perhaps the best example to date is the FCA’s sandbox, the measure of its success being its replication in more than 50 jurisdictions around the world. It was ground-breaking in its time; certainly, we find ourselves now, if not at a crossroads, certainly at a point where we need to consider everything across the fintech landscape and truly reflect on whether we are doing enough, or anywhere near enough, to ensure that the benefits are maximised for individuals, companies, all corporate entities and the UK as a whole.

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I applaud my noble friend Lord Holmes for bringing this important topic to the attention of the Committee. It is an area within which the Government, as well as the financial regulators, are very active. We intend to remain a world leader in this area. This has been a wide-ranging debate and I am conscious that we are limited in time. If there are any questions that I have failed to address in detail I will write to noble Lords. In the meantime, I hope that the work I have described will mean that my noble friend feels able to withdraw his amendment.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I thank all noble Lords who have taken part in this debate.

I say to the noble Baroness, Lady Bennett, that her point on bitcoin was well made but, for the record, it is probably worth clarifying that that is a construction only of that particular cryptocurrency rather than an inevitability of a blockchain-based system.

I thank my noble friend Lady McIntosh of Pickering for her comments and for signing two of the amendments in the group. Similarly, I thank my noble friend Lady Neville-Rolfe for her comments on digital ID. I very much take her putting some more lead in my pencil to underscore the urgency of the issue; I am in complete lockstep with her on that point. I also thank the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, for their constructive and positive comments, and indeed the Minister for her response. With that, I beg leave to withdraw Amendment 112.

Amendment 112 withdrawn.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

That is the nub of the matter. I strongly support the amendment.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this debate on the first group of amendments on the first day of Report on the Financial Services Bill. I declare my interests as set out in the register.

I congratulate the noble Lord, Lord Stevenson of Balmacara, on tabling this amendment and on the way in which he introduced it. These arguments have been put since at least 2017, when we debated the Financial Guidance and Claims Bill. What has happened in the interim has merely strengthened those arguments on the need for a duty of care. During the last year, as in so many other areas of life, we have seen exactly why something in this space would assist. Now that we have the excellent vaccine rollout and inoculation programme, such a duty would put a capital “B” into the “build back better” approach. It would be a real example of “better”.

I will not rehearse the arguments that I made at Second Reading and in Committee. I want to take this opportunity again to thank Macmillan Cancer Support and congratulate it for everything that it continues to do in this area. According to the testimony of a cancer patient,

“I felt I was battling my bank as well as cancer.”


Will the Minister consider what can be done between Report and Third Reading? With the Easter break in between, there is time, so this is more than timely. Can she reassure noble Lords of the potential for movement on this specific point of a duty of care?

[Baroness Kramer (LD)]

My Lords, I shall be very brief. I spoke on this issue at length in Committee. The Government may take note that every single speaker today from across the House has supported the concept of a duty of care and non-exploitation and has urged the Government to act.

In all the speeches, both before today and referenced again today, we have heard about this chain of malfeasance, whether it has been described as scandal or fraud or an abuse of customers. Clearly, the existing legislation does not work, or we would not have this kind of history with new scandals cropping up, sadly, on a regular basis. Like it or not, treating customers fairly is interpreted by both the industry and the regulator as exceedingly light touch, to be offset by the “caveat emptor” principle—the taking of personal responsibility—to which the noble Baroness, Lady Tyler, referred. This is unacceptable. This Government often say that they focus on outcomes. The outcomes have been unacceptable. Look at the outcomes and the chain of scandals. Here is the opportunity to act.

In response, the Minister might say that there are effective tools, such as the senior managers and certification regime. Anyone who has followed the progress of this Bill and the amendments through Committee will have heard how that has broken down. It has, in effect, become something of a busted flush. The Minister might say that scandals have been picked up very early because we have working whistleblowing channels. Again, from listening to the discussion throughout Committee stage, it is clear that this scheme is not working. The analysis in the Gloster report reinforces that.

We do not need a ninth consultation. Every time there is another major scandal, the FCA’s response is to have another consultation. In the end, there is something like a freckle of movement. This issue needs to be seized by the scruff of the neck and resolved before more people suffer injury. The regulator needs to be put on the front foot. By supporting this concept and this amendment or something equivalent to it, the regulator will finally be put on the front foot and the industry will recognise that it has been duly warned and must reconsider the way in which it behaves.

I hope that we shall hear from the Minister that we shall see an equivalent proposal at Third Reading because, if not, I will not hesitate to ask all my colleagues and every Member of your Lordships’ House to support any decision by the noble Lord, Lord Stevenson, to move this to a Division.

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I am not convinced that anything is actually required in statute, given that both bodies have moved towards identifying individuals with responsibilities in this area, but if the proposers of the amendment wish to take it forward they should look much more carefully at how it is drafted.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to follow my noble friend Lady Noakes. In essence, since we are on Report on a Financial Services Bill, these amendments can, I hope, be rightly summed up as, “What point profit if no planet to spend it on?” But, as the term “global warming” clearly sets out, it is collectively a global issue, not a national one. In this context, I give more than a nod towards our involvement with the whole Basel process and the letter from Mr Sam Woods on this issue.

I support the amendments tabled by my noble friend the Minister. They strike the right balance on the need for transition—not in any sense slow or fast, but a transition—to get to where we need to get to across financial services and the wider economy. As noble Lords commented, there is no benefit—quite the opposite—in taking an approach to a particular industry in a particular region of United Kingdom only to have a more catastrophic climate impact by having to shore up resource from other parts of the globe.

In short, the PRA has a role to play, as do all elements in the financial services sector. More can probably be done on the use of new technologies and the measurement of how funds and various assets are performing in this sense. That is certainly in our grasp; it is not a matter for this group of amendments, but it could well provide much of the solution, and certainly the clarity and accountability that would come through in the course of business.

I fundamentally agree with my noble friend Lady Noakes’s commentary on how large corporates go about their funding—[Connection lost.]

[The Deputy Speaker (Baroness McIntosh of Hudnall) (Lab)]

We appear to have lost contact with the noble Lord, Lord Holmes. Perhaps we should move on to the next contributor, the noble Baroness, Lady Altmann.

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[The Deputy Speaker (Baroness Henig) (Lab)]

I understand we now have the noble Lord, Lord Holmes of Richmond, back to finish his speech, so I call him at this point.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I shall not detain the House for long at this stage. I fear I got cut off just as I was extolling the virtues of how new technologies could help in this endeavour. I support the amendments in the name of my noble friend the Minister and look forward to his explanation of them.

[Earl Howe (Con)]

My Lords, let me begin by saying that I have listened carefully to the debate today, as well as the important contributions made in earlier debates on this Bill. As a result of those earlier debates and subsequent discussions held with a number of your Lordships, the Government have tabled the four amendments included in this group, which I shall speak to in a moment. Before I do, I want to leave the House in no doubt as to the context in which we are now operating.

In November, my right honourable friend the Chancellor set out a vision for the financial services sector to put the full weight of private sector innovation, expertise and capital behind the critical global effort to tackle climate change and protect the environment. That is why the Government are taking a number of actions, such as making climate-related financial disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements in place by 2023, and issuing our first-ever green gilt later this year. At Budget this month, we augmented the Government’s economic objectives and the remit of the Monetary Policy Committee and Financial Policy Committee to support environmental sustainability and the transition to net zero. We also established the UK infrastructure bank with a mandate that includes tackling climate change. The Government have ambitious plans to ensure that the financial services sector as a whole plays its role in supporting our climate change commitments. However, we heard loud and clear the strong views from members of this House that they wanted to see that ambition reflected in this Bill.

Amendments 43 and 47 in my name will require the PRA and the FCA to consider the 2050 carbon target in relation to the Climate Change Act 2008 when making prudential rules under the accountability framework set out in this Bill. The Government are showing, very publicly, how the financial services sector and our regulators can take a lead role in delivering on our climate commitments. They are also showing the rest of the world that the UK is taking a cross-sector approach. I have greatly welcomed the way in which noble Lords have engaged with me on this issue. We have picked the 2050 carbon target, as it benefits from being both legally defined and substantively focused. This makes it clear to both regulators exactly what they must have regard to in making their rules and how they can be held to account.

As I explained in earlier debates, the Government and the regulators are committed to implementing the first wave of Basel reforms and the initial introduction of the investment firms prudential regime on 1 January 2022. These reforms are important for our international standing as a country that upholds its international commitments, for financial stability, and for our competitiveness relative to the EU. As I said in Committee, there is a great deal of work happening at the moment at the international standard-setting level to determine exactly how climate change should be factored into prudential policy globally. This is why Amendments 46 and 49 delay the application of mandatory climate change considerations to 1 January 2022. This will ensure there is sufficient time for this work to progress, and that there is no unnecessary and impractical delay in implementing these vital regimes. Otherwise, we would be in the unfortunate position where the regulators would have to reopen or restart their consultations.

When and how will the amendments bite, if not on the first wave of Basel and the IFPR? I can assure noble Lords, particularly the noble Baroness, Lady Hayman, that the PRA will still need to make rules to implement substantive reforms contained in Basel 3.1, which will be implemented in 2023. These rules will be within the scope of the amendments in my name. I fully expect the regulators to use the powers again in future to update their rules—for example, to take account of new international standards or developments in the market. I hope the House will agree that these amendments strike the right balance between acting quickly on climate change and taking swift action to reform our prudential regimes which aims to prevent a future crisis. I therefore see this as a significant action which very visibly demonstrates the Government’s commitment to furthering this important agenda.

The Government are also acting to ensure that the regulators take account of our climate commitments more broadly. At Budget, the Treasury published remit letters for the Monetary Policy Committee and the Financial Policy Committee, requiring both these committees to consider the Government’s commitments on climate change. Today, I can confirm that the Chancellor has set new remits for the FCA and the PRA that will also require them to consider these commitments across the whole of their remit. As has been mentioned in this debate, the CEOs of the PRA and the FCA have both written to me to set out the significant amount of work they have under way. I will provide some further details on this in a moment. They have also demonstrated their clear commitment to acting to address climate change. I have placed copies of their letters in the Library and in the Royal Gallery.

Lastly, and importantly, there is the future regulatory framework review. This is the means by which the Government are exploring how the regulators focus more broadly on important public policy issues, such as climate. I hope this meets one of the concerns expressed by the noble Baroness, Lady Hayman. I can add to it because, as part of that review, the Government recently consulted on a proposal to allow Parliament and Ministers to specify new regulatory principles for specific areas of activity—for example, setting out how the regulators must consider sustainability or green issues when making rules. The Government are considering the responses to the consultation ahead of a second consultation later this year, and recognise the need to address this crucial issue across the whole regulatory framework. I hope I have shown that the Government understand the issue, that we are taking the appropriate actions and that the regulators are ready and willing to support such actions.

I now turn to the other amendments in this group, though not in numerical order. I begin with Amendment 44, which would amend one of my own amendments. Amendment 44 would require the FCA also to take into consideration the UK’s commitments under the UN convention on biodiversity when making rules to implement the investment firms prudential regime.

This Government are committed to being the first to leave the natural environment in a better state than they found it, with our long-term agenda laid out in the 25-year environment plan. As the Dasgupta review highlights, and as the noble Baroness recognises, the global financial system will play a critical role in enhancing our stock of natural assets and encourage sustainable consumption and production activities. We will reflect on the conclusions and recommendations of the Dasgupta review and consider the most appropriate way to take them forward. However, unlike the 2050 carbon target in the Climate Change Act 2008, which my own amendment targets, the commitments under the UN convention are extensive, varied and more challenging to deliver through financial services regulation. Work on how the financial sector can support our transition towards net zero is more developed than work on how the sector can support biodiversity goals.

However, work to develop our understanding is under way. For example, just last year we saw the launch of the Task Force on Nature-related Financial Disclosures. This task force will provide a framework for businesses to assess, manage and report on their dependencies and impacts on nature. This will support the appraisal of nature-related risk and will continue to realign incentives which support our biodiversity goals.

The Convention on Biological Diversity—COP 15—will also be an important milestone for international action on biodiversity. We will work with countries to agree long-term, realistic, measurable and fit-for-purpose targets to set nature on the path to recovery. Nature will also feature as one of five policy themes for COP 26, which has been agreed by the Prime Minister. The nature campaign is focused on catalysing action to protect and restore the natural habitats and ecosystems on which our climate, air, water and way of life depend, which includes increasing the volume of finance for nature-based solutions. I listened with interest to the remarks of the noble Lord, Lord Judd, in that context.

Amendment 3 would place a legal obligation on the PRA to review the risk weights applied to certain fossil fuel exposures and thereby the amount of capital held against them. The purpose of risk weighting is to preserve the safety and soundness of our financial system and to prevent banks failing as a result of not covering themselves appropriately against the risks they are taking. I was grateful for the remarks of my noble friend Lady Noakes on these issues.

In its letter to me, the PRA recognises the threat posed by climate change to the UK economy and the financial system and sets out the steps it is taking to mitigate this threat. This includes setting out specific and detailed supervisory expectations for both banks and insurers on their approach to managing financial risks from climate change. The PRA has also written to firms setting out its expectations that firms should have fully embedded their approaches to managing climate-related financial risks by the end of 2021.

The noble Lord, Lord Oates, questioned why a lower risk rating should be applied to fossil fuel funding than some other asset classes. As I am sure he is aware, the risk weighting of assets is decided internationally through a set of agreed standards set by the Basel Committee on Banking Supervision, and this is based on analysis of how risk is transmitted and how it can be quantified. These post-crisis reforms have also been endorsed by the G20 and ensure that risk weights are applied consistently across the globe. The flexible approach taken in the Bill ensures that, where considerations around the risk weighting of assets change, the PRA can respond to developing circumstances as they arise.

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[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, in Committee, I supported the amendments of the noble Baroness, Lady Noakes, as something that had to be done. It seemed to be a reasonable, if simple, concept that a flawed benchmark reference in a contract, if changed to a closely corresponding but not flawed benchmark—a change required by the regulator—should not give rise to litigation, not least because the contracts should still largely perform as originally intended.

Some contracts may have had termination clauses in the event of no benchmark, which could give rise to premature terminations and winners and losers. However, this is not really a no-benchmark situation. While not everyone has sympathy with banks and industry should they be the losers, this is not a matter on which they would be at fault. I am sure that everyone would have sympathy if consumers were losers but what if it goes the other way and banks want to pursue consumers if they are the winners? I am sure that that would be seen as unacceptable.

This is not mis-selling but, as far as contracts are concerned, it is a blameless matter and it seems to me that continuity is the closest to honouring original intents. If there were a way in which to make simple compensatory adjustments, we would not be facing these problems. I therefore still feel that something has to be done and doing the same as the US also seems to be good in terms of the UK’s reputation for giving certainty to markets.

However, the noble Baroness, Lady Noakes, has now come up with a third amendment, Amendment 6, which empowers the Treasury to address matters further down the track and gives more flexibility in what may be determined. It is a bit of kicking the can down the road and a bit of Henry VIII, but one hopes that it will encourage more solutions to be found. I have therefore added my name to that amendment and hope that at least, if the Minister cannot accept the other amendments, it can be accepted as a way forward.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I am delighted to speak to this group of amendments and declare my interests as set out in the register.

I congratulate my noble friend Lady Noakes not just on the eloquence that she demonstrated in introducing these three amendments but on the quality of their drafting. As an ex-City solicitor, I look on that with awe. I also congratulate my noble friend on offering options. We had a thorough and in-depth debate in Committee on these issues. My noble friend has done the House a great service in bringing a buffet approach for the Government to consider. If they are not partial to Amendments 4 or 5, Amendment 6 will work just as satisfactorily.

These amendments need to be seriously considered. For the want of certainty and for ensuring that litigation does not result if we do nothing, I ask my noble friend the Minister on Amendments 4, 5 or 6, as I have in the past and will do on forthcoming amendments: if not this Financial Services Bill, which financial services Bill? If not now, when?

[Lord Blackwell (Con) [V]]

My Lords, I declare my interests as set out in the register. I support these amendments, which have been so well explained by my noble friend Lady Noakes. In Grand Committee, the Minister accepted that there were concerns that a residual risk of disruption and potential litigation would remain even once the FCA had exercised its powers under the Bill. This is really important, given the amount of money and the number of contracts at stake, and the timescale of the changes in the benchmark at the end of 2021.

My noble friend the Minister said that the Government would prefer to wait for the results of the consultation, but these are not new issues. The Treasury and regulators have been aware of them for many months. The argument was made that the reason for waiting for the consultation is that there might be areas where there was legitimate reason for civil litigation and that those legitimate legal claims might be blocked. I am not persuaded that there are legitimate legal claims where the benchmark is being replaced with a synthetic benchmark at the direction of the regulator. There has to be a change and I cannot think of situations where those claims might be appropriate and fair. I would welcome it if the Minister can explain where those concerns come from and what situations might be blocked unfairly by these amendments.

Other than that, we should move to deal with these concerns now, as noble Lords have said. If the Minister does not like the specificity of Amendments 4 and 5, I would certainly be prepared to accept Amendment 6. I hope my noble friend the Minister will come back at Third Reading with government amendments to address these issues. If she does not feel able to do that and my noble friend Lady Noakes were to bring back her amendments at Third Reading, I would be compelled to support her.

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[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

The next speaker after the noble Lord, Lord Holmes, will be the noble Baroness, Lady McIntosh of Pickering.

[Lord Holmes of Richmond (Con) [V]]

It is a pleasure to speak to this group of amendments, and I declare my interests as set out in the register. I congratulate the noble Lord, Lord Stevenson, on the way in which he introduced this group, and on all the work that he has done in this area, not least with StepChange. More than a step change, he has done more than many marathons around this subject. Not just your Lordships’ House, but the nation, is in his debt for the work he has done on debt.

I also thank the Minister for his engagement throughout the Bill. I know that he is completely committed to this area, and I congratulate him on the engagement and the time he has spent with me and other noble Lords. It is safe to say that this is an issue that will run longer than this Bill. As with so many other issues, Covid puts a new lens on debt, and enables more people to understand that it is not necessarily just for others. Potentially, with a slight twist of circumstance, we are but a heartbeat, or a breath, away from being in tough financial straits. I congratulate the noble Lord, Lord Stevenson, and I look forward to hearing the response from the Minister.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, like my noble friend Lord Holmes, who I am delighted to follow, I am grateful to the noble Lord, Lord Stevenson, and the noble Baroness, Lady Bennett, for giving us the opportunity, with what I consider to be probing amendments, to explore in more detail how the statutory debt management plans will work. I must say to my noble friend the Minister that I am deeply uneasy, because there is very little detail in the Bill about how these provisions will work.

I am a Scot by birth, and a non-practising member of the Faculty of Advocates. Noble Lords will recall that I started my legal career as a humble Bar apprentice, working in a rather Dickensian attic along Heriot Row in Edinburgh, looking at debt collection as part of my role.

I am grateful to the Centre for Responsible Credit for its impressive briefing. What concerns me is a lack of urgency on the part of the Government. According to the Financial Conduct Authority, the pandemic has negatively impacted the finances of 20 million people. Problems are, I understand, concentrated among the self-employed, who obviously have been particularly hard hit, especially those who became self-employed in the year before the lockdown restrictions came into effect. Also heavily impacted are those on incomes of less than £15,000 a year, and BAME communities. The FCA estimates that just under one in five adults is overindebted, with 8.5 million potentially needing debt advice. According to the previous National Audit Office methodology, we can, sadly, expect the knock-on impacts of overindebtedness, such as increased mental health problems and unemployment, to cost the taxpayer in the region of £9 billion a year.

I shall ask my noble friend a question about what we could do, rather than playing for time and our not seeing any detail, with no scheme in place beforehand. As the noble Lord, Lord Stevenson, said in moving his Amendment 11 so effectively, the scheme will not be in place in England until 2024. The question must be: if there is a tried and tested scheme in Scotland, which is working, could we not therefore adapt that scheme to operate in England in the next two years? That would be a great help, and would go to the heart of how we in the United Kingdom approach the issue of debt.

Amendment 12, too, has much to commend it, and I very much look forward to hearing what my noble friend will say in summing up this little debate.

Financial Services Bill

Lord Holmes of Richmond Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, the Government have brought forward Amendment 14 to ensure that buy now, pay later products can be brought into scope of regulation in a way that is proportionate to the risks that they pose to consumers. As noble Lords will recall from previous debates, to which the Government listened carefully, on 2 February following the publication of the Woolard Review into the unsecured credit market, the Government announced their intention to regulate interest-free buy now, pay later products. Following that announcement, the Government have been working at pace to ensure that this can be done in a proportionate and timely manner. Amendment 14 is the next step in this process. Many noble Lords were keen to see progress on the issue, so I hope that they will welcome the amendment today.

The Government recognise the concerns that exist with these products as the market continues to grow in the United Kingdom. We are therefore acting decisively to address the risk of detriment to consumers. The Government intend to bring buy now, pay later products within the scope of the regulatory framework, which includes the application of the Consumer Credit Act 1974. However, as noble Lords have previously heard, it is important to note that those products are interest-free, and thus are inherently lower-risk than most other forms of borrowing. Used properly, they can provide a lower-cost alternative to mainstream or high-cost credit. The Government’s view is that they can therefore be a useful part of the toolkit for managing personal finances and tackling financial exclusion, a topic that I will return to later in the debate. It is therefore essential that when buy now, pay later products are brought into regulation, it is done in a way that provides robust consumer protection, while ensuring that it is viable for firms to continue to offer these products. Amendment 14 will ensure that that can be done.

Some of the provisions of the Consumer Credit Act could be disproportionate, given the short term, interest-free nature of buy now, pay later products. They could also materially impact the way in which consumers are able to access these products. As a result, this amendment seeks to provide the Government with the power to ensure that the provisions of the Consumer Credit Act 1974 that will apply to buy now, pay later products are proportionate to the risks that the products present. This will allow the Government to apply only the provisions of the Act that have been determined to be proportionate to the risks posed by buy now, pay later products.

The Government intend to publish a consultation later this spring where the views of consumers, buy now, pay later providers and the retailers that offer these products will be sought on this matter. We will carefully consider these views to inform our approach to creating a proportionate regime, including decisions on which provisions in the Consumer Credit Act should apply to buy now, pay later agreements. Following this, we will take forward the necessary secondary legislation to bring buy now, pay later agreements into regulation. That secondary legislation will be subject to the affirmative resolution procedure, meaning that noble Lords will have the opportunity to further scrutinise and comment on the Government’s proposals. I therefore ask that your Lordships support this amendment to ensure that the regulation of buy now, pay later can proceed both at pace and in a proportionate manner. I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow the Minister. In doing so, I declare my financial services interests as set out in the register. I would like to be the first to offer my support for Amendment 14 and what it seeks to achieve. I congratulate my noble friend on the decision to use the affirmative procedure to bring these powers into force.

I will now speak to Amendment 35 in my name. The thinking behind it is quite straightforward: financial exclusion has dogged our nation for decades, ruining individual lives and putting down potential. Solutions exist and thousands of people are working so hard in this area, but we need to do more and we need more innovation: hence the two elements in Amendment 35. It seeks to give the Bank of England—our central bank—a more significant role when it comes to financial exclusion. The Bank has an enviable brand, respected right across the UK and revered around the world. This brand could be well put towards solving the problem of financial exclusion.

The first part of Amendment 35 seeks to give the Financial Policy Committee of the Bank of England an objective to monitor financial exclusion. As noble Lords know, the FPC is responsible for financial stability in the UK. I believe there are 407 billion new reasons to take this opportunity to reconsider financial stability and include financial exclusion within the remit of the FPC.

The second limb of the amendment seeks to suggest the opportunity for the Bank to offer basic bank accounts to those who find themselves financially excluded. The take-up of bank accounts for those financially excluded is not just a measure of what is currently available from retail providers. The history of those individuals also plays a key part, so, again, the brand and the central place of the Bank could play a critical role here. If we considered some of those accounts potentially being digital accounts—perhaps central bank digital currency accounts or digital pound accounts—the Bank might play a critical role in addressing digital as well as financial exclusion.

The Old Lady of Threadneedle Street could be not just lender of last resort but potentially, through Amendment 35, provider of first support for those individuals en route to financial inclusion. Provider of first support is certainly worth a thought. Does the Minister agree?

[Baroness Noakes (Con)]

My Lords, I shall speak only in respect of Amendment 35. My noble friend’s amendment is very well intentioned, covering financial exclusion and basic bank accounts. Despite basic bank accounts having been in existence for nearly 20 years now, there remain problems with take-up. The know-your-customer rules, about which my noble friend Lord Holmes of Richmond raised concerns in Committee on this Bill, also make life difficult for individuals trying to access them. It is no secret that the banks regard basic bank accounts as a costly burden that they have to bear, which is probably at the heart of some of the issues.

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[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to participate in this Bill. I strongly support Amendment 27. In view of the passionate speeches by the right reverend Prelate the Bishop of St Albans and the noble Lord, Lord Foster, my contribution will be relatively short, as they have said almost everything that I wanted to say.

In this technological age, it cannot be very difficult for any provider of bank accounts, credit cards, debit cards, store cards and other electronic payment systems to offer customers an opportunity to block payments to certain providers of services. As has already been said, the blockers actually increase consumer choice. The blockers would be of enormous help, as has been said, to those addicted to gambling or other ruinous addictions—of course, gambling is not the only one. It would certainly help their families too, because it would safeguard the family budget, which then cannot simply disappear by the swipe of a card or the click of a computer key.

I would urge that such blockers should be a necessary condition of the authorisation to trade in financial services in the UK. Other regulators, such as the Gambling Commission, should also insist that anybody who is licensed provides such facilities. The blockers obviously would not prevent people from indulging in gambling and other ruinous addictions. Nevertheless, they would really help vulnerable people in our society and I completely support this amendment.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this group of amendments and I declare my interests as set out in the register. I will speak to a trio of amendments and I will endeavour to do it in a trice.

First, I very much support the intention behind Amendment 16. I ask my noble friend the Minister, over and above what is set out in the amendment, what reports the Government have received of bailiffs entering properties during the Covid period, both in breach of their guidance and the Covid regulations, and what action all relevant authorities will be taking in this respect.

Secondly, on Amendment 26, I very much support my noble friend Lord Leigh of Hurley, who set out the arguments perfectly and succinctly. Would my noble friend the Minister agree that there is clearly a loophole, and what will the Government do effectively to close said loophole?

Thirdly, and perhaps most importantly, I give full-throated support to Amendment 37C, so perfectly introduced by my noble friend Lord Young of Cookham. It seems one of those amendments where, for want of a small legislative change, a huge material difference could be made to so many people’s lives. It is a funds-releasing, anxiety-relieving amendment. I ask my noble friend the Minister: if not this amendment, will the Government bring forward one of their own at Third Reading? If not this Bill, what Bill?

[Lord Addington (LD)]

My Lords, while sitting here listening to this debate, I could not help but get the feeling that there had been a drawing of lots in the Government Whips’ Office when they were preparing to take on these amendments and the noble Lord, Lord True, lost. All of the issues here are good and real issues. If these amendments were accepted and brought forward, they would probably make our lives that little bit better.

Before I bring my full attention to the amendment brought forward by the noble Lord, Lord Young, I will say that we deserve to hear at least about a plan of action to deal with all these issues. If the Minister cannot provide that now, giving some idea of when they will be considered is very important. They are real issues; please deal with them. That is what we are here for. The only justification for us being in this Chamber is to deal with them, so can we hear about that?

When the noble Lord, Lord Young, first raised the issue in his amendment, I said that he had put his finger on an absurdity. I have not changed my mind. I think that the noble Lord, Lord Blunkett, basically said that the cock-up school of history is alive and functioning. The rest of us who were in Parliament at the time and involved in those Bills take our share of the blame because we did not spot it either. Can we change this?

The noble Lord, Lord Young, made about half a dozen arguments in his speech for why the amendment should be accepted or acted on. The most convincing one was that, for a comparatively modest sum of, say, £3,000, you have about four or five days-worth of paperwork. That is paperwork that you might not be very good at and which you might have to repeat, over and again, to get the money out—and usually the person doing the paperwork to get the money to support the child put that money in the bank in the first place. This is beyond belief; it is Kafkaesque. Will the Minister make sure that the people who put the money in to support a child can take it out to do so? What method are the Government taking? The law does not allow it at the moment, but we change the law all the time—we are doing it now. Please can he give us a plan of action on this?

The noble Lord, Lord Young, said that he did not expect to vote on this. The ball is of course firmly in his court on this one, but, dependent on what the Minister says, I hope the noble Lord will decide whether that is the correct approach here. I know it will annoy the Whips if we have a vote on this, but if the Minister cannot give him something that is at least in some way positive, I will certainly herd my colleagues through to support it.

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[Baroness McIntosh of Pickering (Con)]

It gives me great pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and lend my support, with my co-signing, to an important follow-through from the Law Commission’s conclusions and recommendations. I echo the remarks I made in my support in Committee, and I believe the contribution from the noble Lord, Lord Stevenson, has been modest today. We are seeking reassurances, and I echo his concern about a definitive timescale.

It is interesting to note, as a non-practising Scottish advocate, that bills of sale do not apply in Scotland, so the Act does not extend to Scotland, and the provisions only really apply to England and Wales in this regard. Bills of sale, being mainly used for logbook loans, relate mostly to vehicles. But this is an opportunity, in supporting the amendment before us this afternoon, to probe my noble friend and the Government a bit further about what their plans are to review the recommendation.

Law Commission reports do not come along that often, and they come along often at the invitation of the Government. I would like to ask my noble friend about his intentions to give effect to the recommendations of the Law Commission report of 2017. In the consultation paper, it was proposed that the Bills of Sale Acts should be repealed in their entirety and replaced with new legislation to regulate how individuals may use their existing goods as security while retaining possession of them. Out of the 32 consultees who expressed their views, 24—75%—agreed to that.

I entirely endorse the Law Commission’s opinion that:

“The Bills of Sale Acts are written in obscure, archaic language, using words such as ‘witnesseth’ and ‘doth’.”


That sounds a bit like “the Leith police dismisseth us”. In the interests of modernising the legislation and making it more transparent, the purpose of Amendment 17 is entirely clear, and I take this opportunity simply to nudge and press my noble friend on what the Government’s intentions are now, four years on from the Law Commission’s recommendations.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady McIntosh, and to congratulate the noble Lord, Lord Stevenson of Balmacara, on all his efforts in this respect. The Law Commission’s recommendations seemed pertinent and on point in 2017; four years on, they seem similarly pertinent and on point. Will my noble friend the Minister set out the pathway and the timetable for consideration of those arcane statutes, and tell us what issues and other legislation, which he alluded to, may also be under consideration along that pathway?

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[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part on this group of amendments. I declare my financial services interests and say just this: the borrowers are not to blame, but they bear the burden. Does my noble friend the Minister agree?

In agreeing to a large extent with my noble friend Lady Noakes, with regret I am not convinced that these are necessarily the amendments to resolve the issue. Can the Minister set out what action he believes the Treasury and FCA are taking in this area? There clearly is an issue even if we accept that the numbers may be disputed, or that there are different categories and specific circumstances. These are all important points to be considered, but they still leave issues to be addressed. Will the Minister set out anything he can about what actions the Treasury will take and what the approach of the FCA will be to address these points?

[Baroness Bryan of Partick (Lab) [V]]

My Lords, it is a great honour to participate in this group of amendments, and particularly to support the noble Lord, Lord Sharkey, who has worked tirelessly to support mortgage prisoners. I feel I am in a similar place to my noble friend Lord Griffiths of Burry Port when he spoke in Committee. I will speak as someone inexperienced in high finance but who understands the importance of having a home—not as a financial asset or investment, but as somewhere safe and secure to live. To make this most basic need a pawn in the machinations of greed-driven financial transactions, as demonstrated by the financial crash of 2008, is an absolutely unacceptable face of capitalism.

Every Government since 1979 have encouraged people to see home ownership as a sign of virtue. When the noble Lord, Lord Heseltine, was Secretary of State for the Environment, he said:

“Home ownership stimulates the attitudes of independence and self-reliance that are the bedrock of a free society.”


But for many people, the period of their mortgage is a rollercoaster ride of anxiety, always dependent on matters far outside their control. The day the mortgage is paid off must rank among the best days of people’s lives. Many mortgage prisoners fear they will never see that day.

The FCA reported in July 2020 that around a quarter of a million people have their mortgages held by inactive firms. The majority of these people were up to date with their payments and, in any other circumstances, would have been able to adjust their mortgages and repayment patterns to suit their individual needs. No one would choose to remain on the SVR for years on end, so to compare their entrapment on that rate to those who may be on it temporarily, while they seek an alternative, is disingenuous. These people have been denied that opportunity, not through any decision they made or any fault on their part, but because of the way the Government chose to sell off mortgage loan books. It was not just people’s mortgages that changed hands, it was people’s lives—they were being bought and sold.

This Bill was viewed with real optimism among some mortgage prisoners. They thought amendments relating to SVR would help transform their lives, but how often have they been here before? Last year, there was hope that the FCA’s more lenient affordability checks would help some escape, but very few succeeded. For many more, their lives were made even more difficult by the impact of Covid-19. The report from the LSE in November 2020 makes the point that the FCA has now reached the limit of its powers. This means that only the Government can help to free mortgage prisoners. Instead, while Parliament was considering amendments aimed at protecting mortgage prisoners, the auctions continued. All the warm words and expressions of concern from Ministers meant nothing. The Treasury’s sole concern was that these people must deliver value for money for the Government.

These amendments are considered and cautious. Their implementation would not undermine capitalism or fundamentally damage the whole system of mortgage delivery, but would give some safeguards to a specific group of mortgage prisoners who have struggled for more than 10 years as victims of the failure of the very system the Government are defending. If it is not to be these amendments, what help will the Minister offer? Unless there is a clear alternative, I hope we will be given the opportunity to vote on at least one of them. I would be very pleased to give my support.

Financial Services Bill

Lord Holmes of Richmond Excerpts

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I shall speak to Amendments 28 and 29 in my name on digital identification, and I thank my noble friends Lady Mcintosh of Pickering and Lord Holmes of Richmond for their support. I take a substantial interest in facilitating the provision of digital ID and have done so for several years. It is the sort of thing where the UK, with its early adoption of digital and skills in matters of security, should be ahead of the curve. Perfectly good systems exist in a number of areas and have been rolled out in other European countries and Asia but, unfortunately, not here.

I tabled amendments in the same sense during the passage of Covid legislation last year. I did not press the matter because I was promised progress and I had good meetings with my noble friend Lady Williams and with the Digital Minister, Matt Warman MP, who published proposals for the UK digital identity and attributes trust framework on 11 February. Last week, my noble friend Lord Holmes and I had another constructive meeting, this time with my noble friend Lady Penn—currently on the Front Bench—and civil servants in DCMS and the Treasury.

I am perhaps a little too impatient for the Civil Service or, indeed, for the Front Bench, which is no doubt why I am better suited to these Benches, but I warn noble Lords that I will continue to press this matter until we introduce a reliable system of online ID—not a consultation and not a plan, but a government-approved system. But I am very reasonable, so let us start in financial services—the subject of today’s Bill. So much progress has been made already that it ought to be possible to capture this in regulation now. As we discussed in Committee, this could be helpful in reducing fraud, which has mushroomed in financial services.

Likewise, we should be able to introduce digital ID for sales of alcohol; the supermarkets already use such methods for preventing the sale of knives to those aged under 18. We should also allow a trial in a pub chain or two, and we could use digital ID in the property sector, where the ID checks for domestic house sales are needlessly bureaucratic and repetitive. We do not need to get into the question of domestic vaccine passports, of which I strongly disapprove, or of ID cards, but evolutionary progress on digital ID—starting in financial services and honed to appropriate use—is overdue.

I have tabled two alternative amendments. Amendment 28 is an enabling power allowing the Treasury to press ahead, subject to a parliamentary debate, as soon as it has sorted out a system of digital ID—whether on a trial basis or when it has a definitive solution for the sector, which should be soon. We do not want to wait for the online harms Bill or another legislative vehicle. Amendment 29 provides for a review by 1 September this year. My own experience as a Minister and a civil servant is that such reviews and a clear date can be effective where there is a political will to get something done, as I believe there is here. I beg to move.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady Neville-Rolfe; in doing so, I declare my financial services interests as set out in the register.

My noble friend and I came into the House in the same autumn and, since 2013, we have both talked very much about distributed digital ID. It was pressing in 2013, so it certainly is in 2021. I will speak to all the amendments in this group briefly. I had pleasure in adding my name to my noble friend Lady Neville-Rolfe’s amendments; they are clear, succinct, short and to the point, and do the job. Does my noble friend the Minister agree?

My Amendment 30 merely seeks to flesh out some of the elements which must be considered if we are to have a successful distributed digital ID—the issues around scalability, flexibility and, crucially, inclusion. Does my noble friend the Minister agree that not only are these three issues vital to any distributed digital ID but that any ID should be predicated on the 12 principles set out in self-sovereign identity? Does she also agree that, because of the nature of this issue—as my noble friend Lady Neville-Rolfe pointed out—including issues around ID cards and Covid passports, there is a pressing need not only to move forward with this work but to have a public engagement to enable people to understand the issues and really get to grips with a system that can work for all?

My Amendment 31 seeks only to push the opportunity for the UK around open finance. We have seen the advantages open banking has brought; does my noble friend the Minister agree that open finance could be a boon for the UK, and could she set out the Government’s plans to enable this? I brought Amendment 32 forward in Committee so I will not dwell on it, except to seek a specific answer on subsection (2)(a) of the proposed new clause. Does my noble friend the Minister agree that we need to seriously consider the dematerialisation of UK securities at least at the same speed as that proposed in the EU? This is a competitive market; it is a race.

Finally, my Amendment 37E was brought forward simply to push the need for a review of access to digital payments. Digital payments are the future, accelerated by Covid, but, crucially, huge swathes of the population rightly rely—and must be allowed to rely—on cash. Does my noble friend agree that we urgently need a review of access to digital payments?

[The Deputy Speaker (Lord Haskel) (Lab)]

I call the noble Lord, Lord Davies of Brixton. Lord Davies? I call the noble Baroness, Lady McIntosh of Pickering.

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Moved by

[Lord Holmes of Richmond]

37D: After Clause 40, insert the following new Clause—
“Payment services and the provision of cash
In Part 2 of Schedule 1 to the Payment Services Regulations (S.I. 2017/752) (activities which do not constitute payment services), after paragraph 2 insert—“3_(1) The provision of cash otherwise than through an automatic teller machine does not constitute a payment service where—(a) there is a transfer of a corresponding amount from a payment account held by the recipient of the cash to a relevant person, and(b) the payment account is not provided by a relevant person.(2) In sub-paragraph (1), “relevant person” means—(a) where the cash is provided by a person (“P1”) through one or more persons acting on P1’s behalf, P1 and each person acting (directly or indirectly) on P1’s behalf;(b) where the cash is provided by a person (“P2”) otherwise than on behalf of another person or through one or more persons acting on P2’s behalf, P2.(3) The execution of the transfer referred to in sub-paragraph (1)(a), and other services enabling that transfer, are not excluded from the meaning of payment services by this paragraph.””Member’s explanatory statement
This amendment provides that, in certain circumstances, the provision of cash does not constitute a “payment service” for the purposes of the Payment Services Regulations 2017. Persons would no longer have to be authorised by, or registered with, the FCA in order to provide that service.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to speak to these amendments, both of which are in my name. In doing so, I declare my financial services interests as set out in the register. I will move also Amendment 40A when we get to that stage.

I thank my noble friend the Minister for the way that he has engaged not just on this amendment but across the whole of the Financial Services Bill. Indeed, I thank the whole ministerial team and all Treasury officials for having numerous meetings with myself and other noble Lords. It has been the model of how to progress legislation through your Lordships’ House.

There is a very simple and, I hope, clear purpose at the heart of the amendments: to enable cashback without a purchase. As with so many other areas of our lives, Covid has had a dramatic impact on cash usage across the United Kingdom, which has been divergent across different nations, regions, socioeconomic groups and people with different protected characteristics. If cash is no longer king, to millions across the UK it is certainly still more than material. It is beholden on all of us to ensure that people have a right to rely on cash and that a network exists across the country where they can reasonably access it. ATM withdrawals have dropped by over 50% since 2019. We have to look to other resources, other things that we have across the country where individuals and small businesses can access cash. That is the purpose of my Amendment 37D.

Currently, it is possible to get cashback with a purchase and, under the Payment Services Regulations, it is not possible to get cashback without a purchase. This amendment would change that, enabling cashback without a purchase and taking it away from what would be considered a payment service under the PSR 2017. The amendment has wider implications, I hope, than just the ability to access cash. It speaks to well-being, social isolation and a real sense of community, and to using the resources that currently exist far more efficiently and effectively for the benefit of all. In 2019 there were 123 million cashback with purchase transactions. Clearly, there is huge potential for cashback without purchase if we pass the amendment this evening.

The amendment is drawn in a deliberately permissive way to enable innovation. For example, if a fintech wanted to offer a service across a number of locations on behalf of those locations, the amendment would enable it to. Similarly, if a rural café wanted to offer cashback without a purchase on its own behalf, the amendment would enable it to.

We have seen such dramatic changes in the use of cash in recent years, heavily accelerated by the Covid crisis, yet cash still matters. If we do not act, the network that supports cash could disappear in a trice, or become inordinately expensive and leave millions of people without access to cash and, through that, to social inclusion, financial inclusion and an ability to play the part that they have a right to in our society.

Amendment 40A merely enables the regulation to come in two months after the passage of the Bill to give a reasonable period post passage.

I hope that Amendment 37D is clear and that it achieves what it seeks to: enabling cashback without a transaction for millions across the country. I believe it is good for individuals, financial inclusion, business and the high street. Cashback without a transaction could enable part of our Covid build back. I beg to move.

[Lord Hunt of Wirral (Con)]

My Lords, I again draw attention to my interests as set out in the register, particularly as an independent non-executive director of LINK.

In speaking to an earlier amendment, I touched on the challenges of financial exclusion. The problem is complex and the answer, in so far as there is one, is never going to be simple. However, I congratulate my noble friend Lord Holmes of Richmond, particularly on his vision in seeing a way to at least meet the problem that he so clearly set out. I welcome word that the Government propose to act along the lines set out in this amendment and the subsequent one to help create greater flexibility in access to cash. Of course we all accept that financial services require regulation, but that regulation should always be proportionate, not stifling.

In some respects we have been fortunate in the past year. Not only have food supplies been maintained, but our digital infrastructure held up remarkably well, despite the increased demands on it. Imagine if it had not—if the internet had crashed for a few days or our banking system had cracked and digital payments had failed. I believe there would then have been rather less talk of cash being a thing of the past.

The principal theme of recent months has been resilience, which demands diversity and innovation. The amendment, and my noble friend Lord Holmes of Richmond’s vision and thinking behind it, perfectly captures that.

For the foreseeable future, cash will continue to be a vital medium of exchange for millions of people. The viability of our system for providing access to cash is therefore a necessity, not a luxury. I pay tribute also to the foresight and leadership shown by my noble friend Lord True. These decisions demand innovation and flexibility, and the kind of thinking captured by my noble friend’s amendment will be vital. I know that everyone involved in the payment system will be very supportive.

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[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, I join the expressions of sadness at the news of the death of the noble Lord, Lord Judd, such a tireless campaigner for all the causes he held dear. Even though we meet, of necessity, in an almost entirely empty House, it says everything about the noble Lord that one feels that one particular place over there is empty. Our thoughts go out not only to his family, particularly, but to all those in the Labour Party family who were inspired by his example and loved him as a man.

Amendments 37D and 40A seek to facilitate the provision of cashback without a purchase. I say at the outset to the noble Lord, Lord Tunnicliffe, my noble friend Lord Hunt of Wirral and others that the Government will support these amendments. The noble Baroness, Lady Kramer, is able to divine the language of draftsmen even better than I am.

These amendments introduce an exemption for cashback without a purchase, such that it will no longer be a regulated payment service. Under the current legislation, which derives from the EU’s second payment services directive, if a business or its agent, such as a corner shop or supermarket, wanted to offer you cashback without requiring you to make a purchase, it would have to be authorised or registered with the FCA to give you cash from your own accounts. That is a significant burden for even the largest of retailers, let alone small, local shops along the various high streets across the UK.

This amendment removes this requirement; it will take effect two months after Royal Assent. From that point, industry will have discretion to make the service available across the United Kingdom. Where the service is offered, customers will be able to walk into a local business that wishes to participate, such as a corner shop, café or pub, and withdraw cash without having to make an accompanying purchase.

As part of the community access-to-cash pilots, LINK—the UK’s main ATM cash machine network—and PayPoint are already testing a cashback without purchase service in a small number of local stores in Cambuslang, Hay-on-Wye, Burslem and Denny. Indications from this trial are positive, and the Government look forward to the outcomes. This amendment will allow for such initiatives to be rolled out across the UK more easily.

The Government recognise that, as my noble friend Lord Holmes of Richmond said, widespread access to cash remains and will remain extremely important to the daily lives of millions of people across the United Kingdom. Although it was not possible in time for this Bill, I can certainly assure the noble Baroness, Lady Kramer, that the Government have committed to legislate to protect access to cash and to ensure the cash infrastructure is sustainable in the longer term.

The Government published a call for evidence on access to cash in October 2020. This highlighted the potential benefit of facilitating cashback without a purchase through legislation. Cashback with a purchase was in 2019 the second most frequently used method of withdrawing cash in the UK, behind ATMs. As my noble friend Lord Holmes of Richmond told us, there were 123 million cashback transactions, amounting to a total amount withdrawn of £3.8 billion.

The Government’s view is that cashback without a purchase has the potential to be a valuable facility to cash users and to play an important role in the UK’s cash infrastructure. This legislative change, which is possible only now we have left the European Union, would help both to support the availability of cash withdrawal facilities across the United Kingdom, benefiting individuals’ access to cash, and to support local cash recycling. These amendments are therefore a welcome step towards protecting access to cash.

I am particularly grateful to my noble friend Lord Holmes of Richmond, who raised this important issue in Grand Committee, for the constructive way he has engaged with the Government and officials since then on this important issue. I am very pleased to be able to say that the Government are proud to support these amendments. Meanwhile, as I covered in my earlier remarks, the Government are considering responses to the call for evidence and look forward to setting out next steps on legislation to protect access to cash in due course.

[Lord Holmes of Richmond (Con)]

My Lords, I thank all noble Lords who have contributed to this debate on such an important issue. Cash still matters, and it matters materially to millions. I thank particularly my noble friend the Minister for the way in which he and all Treasury officials have engaged with this issue. It is a key part, but, as other noble Lords have rightly identified, only one part, of what it means to have a cash-enabled, easily accessed economy across the UK. It adds to financial inclusion. More than that, it adds to complete social inclusion.

We all need to think innovatively about how we can do more to enable, empower and unleash true financial inclusion across the UK. It matters economically, socially and psychologically. If we can enable it, it can address so many of the issues that have dogged our nations for decades.

Again, I thank all noble Lords who have contributed, and I thank particularly the Minister and Treasury officials.

Amendment 37D agreed.

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Moved by

[Lord Holmes of Richmond]

40A: Clause 45, page 48, line 18, at end insert—
“(e) section (Payment services and the provision of cash).” Member’s explanatory statement
This amendment provides for the new Clause about payment services and the provision of cash to come into force two months after the Bill receives Royal Assent.