Financial Guidance and Claims Bill [HL]

Lord Holmes of Richmond Excerpts

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

Moved by

[Lord Holmes of Richmond]

41: After Clause 17, insert the following new Clause—
“Regulatory principles to be applied in respect of claims management services
(1) In relation to the regulation of claims management services, the FCA must act according to the principles that— (a) authorised persons should act honestly, fairly and professionally in accordance with the best interests of consumers who are their clients; and(b) authorised persons should manage conflicts of interest fairly, both between themselves and their clients, and between clients.(2) In this section, “authorised person” has the same meaning as in the Financial Services and Markets Act 2000, and “authorised persons” shall be construed accordingly.”

[Lord Holmes of Richmond (Con)]

My Lords, being a member of the my noble friend Lord Hunt’s flock in your Lordships’ House, I am a bit concerned that if I overly push on Amendment 41, which comes hot on the heels of Amendment 39A, I, too, may be the victim of whiplash. We discussed many of the issues in Committee. I have brought back the amendment on Report so that I might push my noble friends who understand the timeline for bringing in a duty of care. My initial intention was to table an amendment placing a general duty of care on financial institutions; as a result of the scope of the Bill, a specific duty as set out in my amendment pertaining to CMCs is what we are discussing today.

I am grateful to all the organisations that helped with briefing for the amendment, not least Macmillan Cancer Support, which really demonstrates what a modern charity can do, not just focusing on the specific issue at the centre of its organisation but going wider to all the elements that directly affect people when they receive a cancer diagnosis. That is partly why I chose to focus on Macmillan and cancer in putting down this amendment. It goes to the heart of bringing to life why there is a need for a general duty of care to be exercised by financial services institutions, when one in two of us will receive a cancer diagnosis in our lifetime. This is not a marginal matter; it demonstrates that financial institutions not only have their current responsibilities and obligations but need that general duty of care.

The amendment deals specifically with CMCs. I push my noble friend the Minister to accept it and to give some further description building on comments that he made in Committee on the timeline for considering bringing forward and implementing a general duty of care, with the good offices of the FCA obviously involved—I am grateful to the FCA for meeting me to discuss this, not least Mr Christopher Woolard. I shall say no more; the arguments were put in Committee. I urge my noble friend to accept the amendment and beg to move.

[Baroness Kramer (LD)]

My Lords, I congratulate the noble Lord, Lord Holmes of Richmond, on sticking with this issue, because it is fundamental. I say to the Government that a duty of care is so important and should be so central to every piece of our financial services industry that we should not let the perfect—having a general duty of care—be the enemy of the good, which is the opportunity to put a specific duty of care in this Bill. I hope the Government will consider that.

I have the privilege to be on the Parliamentary Commission on Banking Standards. As we sought to strengthen the framework of regulation and to expose a lot of misdirection within the financial services industry, I think everybody, not only on the committee but far more broadly, agreed that the key problem lay in culture. We have turned to the banking and financial services industries and asked them through various bodies to improve their culture, but surely we also have a responsibility to drive that with every piece of legislation that comes our way. Duty of care reflects that whole-culture approach: the underlying, underpinning approach that we expect our financial services to take, where the interests of the customer are at the centre. It is not that the financial services should not be able to make profits—of course, that is the business they are in—but it should never be at the expense of that central interest of the client or customer.

I urge the Government to take seriously this opportunity in an area where there has been extraordinary abuse. I listened to the noble Lord, Lord Hunt of Wirral, for example; others talked about whiplash and issues around holiday sickness. In issue after issue, we have seen a complete failure in the culture of the bodies that provide such services. We should tackle that issue head on and not be afraid to use language that is clearly around that duty of care—not considering it too soft or too difficult—so that it becomes a general habit. I hope we will not rely just on general duties of care, because those can sometimes be imperfect, but will make sure that in every piece of financial services legislation this issue is underscored. In that, this legislation could be a leader.

--- Later in debate ---

[Lord Young of Cookham]

My Lords, I am grateful to my noble friend Lord Holmes for moving the amendment. He mentioned that he was a member of my flock. He displays exactly the right independence of thought tempered by loyalty to the party that any Whip could wish for. I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord McKenzie, and my noble friend Lady Altmann for speaking to the amendment, which seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interest of consumers and managing conflicts of interest fairly. Noble Lords also raised the broader issue of duty of care, which is not mentioned specifically in the amendment but is obviously relevant. As noble Lords may remember, my noble friend tabled a similar amendment in Committee.

Aside from the provisions in general consumer law, the FCA already applies rules on firms conducting regulated activities in relation to their dealings with consumers. First, the FCA’s rules set out in Principles for Businesses require firms to conduct their business,

“with due skill, care and diligence”,

and to,

“pay due regard to the interests of … customers and treat them fairly”.

Principle 8 sets out:

“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.


That accurately mirrors proposed new subsection 1(b) in the amendment, so there is a congruity of objective there.

Secondly, the rules on clients’ best interests require a firm to act in its client’s best interests across most regulated activities. The client’s best interests rule states:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its client”.


Again, those are exactly the words used in my noble friend’s amendment, so there is no disagreement over objective.

Thirdly and finally, a number of FCA rules contain an obligation on firms to take “reasonable care” for certain activities. For example, one of the Insurance: Conduct of Business rules states:

“A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment”.


Those rules in the FCA Handbook are supplemented by more specific rules in various FCA sourcebooks. The FCA will be able to apply its existing Principles for Businesses, which I have just quoted, to claims management companies and to make any other sector-specific rules that may be necessary, under its existing objectives. The FCA supervises against these rules and other provisions and, where necessary, can take enforcement action against firms to secure appropriate consumer protection.

The FCA is of the view that its current regulatory toolkit is sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management services and how they fit together as an overall regime. In doing this, the FCA will take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. It will also consult publicly on its proposed rules.

Turning to the broader issue of duty of care, the noble Lord, Lord McKenzie, asked whether there were any pearls. I think the oyster is still at work so the pearls are not available for display this evening. The words “duty of care” mean different things to different people and the precise scope and content of any proposed duty of care are uncertain. The impact of a duty of care obligation needs to be fully considered, as do the cost, complexity and time that might be involved in customers seeking to bring firms to court as a result of a duty of care obligation.

I was asked to say something about the timescale of the work on this. A duty of care could have an effect on many of the FCA’s provisions in its handbook, including the need to replace or remove some. The FCA intends to undertake a comprehensive review of the handbook post Brexit. The FCA believes that it would be best to include duty of care in that review, particularly as the FCA’s ability to change its rules in some areas will depend on the relationship between the EU and UK post withdrawal. Many of the FCA’s current rules are based on EU legislation. Once the relationship between the EU and the UK following withdrawal is clear, there will be more clarity around the degree of discretion that the FCA has to amend its rules.

In addition, the FCA is currently identifying the necessary changes to its rules to ensure that they continue to operate as a coherent set of rules following EU withdrawal. This work is being done in parallel with the work across government to review directly applicable EU legislation. It is a significant, complex and time-critical exercise that must be progressed immediately. If noble Lords have any concerns about the timing of the discussion paper, that is primarily a matter for the FCA.

Returning to the amendment, it is not necessary to include regulatory principles in the Bill because of the provisions the FCA already has. For that reason, I would request—or suggest—to my noble friend Lord Holmes that he withdraw his amendment.

[Lord Holmes of Richmond]

I thank all noble Lords who have participated in this short debate, and my noble friend the Minister, from whom I am happy to take requests and suggestions in equal measure.

I imagine my noble friend has become far more familiar with the rulebook than he could have imagined or perhaps even desired. I agree with the rules he recited but there seems to be a slight contradiction in that the rules are clearly stated but simultaneously it is accepted by all concerned, not least the FCA, that there is at least a question worth asking and looking into around duty of care. I think we are in a positive place: there is an acceptance that there is at least a question that is worth looking into.

In financial services there is a lot of talk around the acronyms, as in any business or organisation. There is a lot of focus on KYC—“Know your customer”. May I suggest that, rather than promoting just KYC, all noble Lords involved in this debate and everybody outside the Chamber should also promote alongside it CFYC? That would take financial services into a very positive place for the future, as that “Care for your customer” is where banking originated centuries ago. It would be a thoroughly good thing for all financial services organisations to have a sense of CFYC.

On the amendment itself, I have heard my noble friend’s arguments and I understand the position. It would be helpful to have further discussions between now and Third Reading, to see what specifics it may be possible to set out in regard to this amendment. We may have had the answer on the general duty for this stage but it would be worth while having more discussions, not least because we are promised the response to the report of the Financial Exclusion Select Committee, of which I was fortunate enough to be a member. I would welcome further discussions and we could then decide what the route may be to Third Reading. But in thanking all noble Lords who have participated this evening, including my noble friend the Minister, at this stage I beg leave to withdraw the amendment.

Amendment 41 withdrawn.