Financial Services and Markets Bill

Lord Holmes of Richmond Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

Moved by

[Lord Holmes of Richmond]

218: After Clause 71, insert the following new Clause—
“Digital identification
(1) Within six months of the passing of this Act, the Secretary of State must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.(2) The digital IDs should be—(a) scalable,(b) flexible, and(c) inclusive.(3) The Secretary of State must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process with regard to the financial sector.(4) In this section—“digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1;“flexible” means capable of resilience and workable as technologies develop and evolve;“inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010;“scalable” means capable of national deployment.”

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to move Amendment 218 in my name and to speak to this group of amendments. In doing so, I declare my financial services and technology interests as set out in the register. I will speak to Amendments 218, 220 and 221 in my name and will also speak briefly to the remaining amendments in the names of my noble friends Lord Bridges and Lord Forsyth respectively.

Amendment 218 is about perhaps one of the most significant things that we could do to transform financial services in the United Kingdom. Whether we are talking about fraud, operational efficiency or whatever measure or element of financial services we are considering, to have a form of digital ID would transform the current situation. It is vital that the Government strongly consider and move forward with such a system of ID and, in doing so, fully engage the public on this. Understandably, if the public one day wake up and find that they need a digital ID to access their banking services, why would they think that is a good thing if they had not been involved at any stage in the creation and the deployment of such an ID?

To put it in a non-financial services frame, if I wanted to have a pint—not now, obviously, although the previous group perhaps took longer than we were expecting—I might be asked for a passport. What is the purpose of that? Why should the bartender see my name, my date of birth, my passport number, where I was born, et cetera? All that is required for that pint to be put in front of and consumed by me is that, at the point when I order and consume the pint, I am over the age of 18. Nothing more needs to be known.

The same credential-led approach is what we require in financial services—not a huge giveaway of data with the potential for businesses to grab everything about us, as has happened in other sectors of the economy. Put simply, we need a particular credential that is within an individual’s control and can be put across to enable a transaction or inquiry, whatever it may be, to take place. I ask my noble friend the Minister to comment on the need for the Government urgently to engage and to increase the work that is happening in other departments on a general digital ID to be particularly applicable to the financial services sector.

Amendments 220 and 221 concern artificial intelligence. It is worth me making a few preliminary points before I go into the specific elements of the amendments. A helpful Bank of England paper on this subject was put out on 11 October last year, lest anybody think that AI is something for the future and not for us to worry about in the Bill. In the paper, 72% of financial services businesses said that they already use, or are about to use, AI. None of them said that they believed that the current way in which they used AI was high-risk, while more than half said that they were currently constrained in their ability to deploy AI fully because of current regulations on the PRA and FCA approach to the subject. That is some of the backdrop. To put my own cards on the table, lest anybody think otherwise, I am neither Panglossian nor po-faced about AI or, indeed, any of the other new technologies that we have in our hands. Yes, they are incredibly powerful technologies, but they are in our human hands in terms of how we design and deploy them. Thus I describe myself as rationally optimistic about their potential.

Amendment 220 brings this to life, I hope. It is a real opportunity for the UK, not just in financial services but across the whole of our economy and society, if we have an approach to ethical AI. The UK could be world-leading in the deployment of ethical AI; financial services is as good a place as any to have such an approach. I reference the Centre for Data Ethics and Innovation in this amendment; I am not wedded to it. Other organisations, such as the Alan Turing Institute, also have a role to play but the key is that there is an agreed underpinning.

For example, when we did the Lords Select Committee AI report in 2018, we set out five ethical principles; I do not want to give them any more concretion, to reference a previous group, but I say to my noble friend the Minister that one of the key architects of those ethical principles was the right reverend Prelate the Bishop of Oxford, who was a member of the committee. One therefore understands that they have behind them more than just the weight of the mere mortals here today.

Amendment 221 seeks to build on the ethical AI deployed in financial services institutions, and to have in every such institution a member with a responsibility for AI, in the same way that we have a money laundering reporting officer. Obviously, specific to the size of the organisation, it does not need to be an individual who performs only that role, but somebody in every financial services institution in the UK needs to be a designated AI officer. Does my noble friend the Minister agree?

--- Later in debate ---

[Baroness Penn (Con)]

I am afraid that I have gone as far as I can in detailing the approach that we would take to Parliament. We expect to engage Parliament fully. However, the legal basis for the digital pound will be determined alongside consideration of its design. Work is not yet at the stage where we can provide that further clarity.

[Lord Holmes of Richmond (Con)]

I thank all noble Lords who have participated in this debate and my noble friend the Minister for her response. At this stage, I beg leave to withdraw the amendment.

Amendment 218 withdrawn.

--- Later in debate ---

[Viscount Trenchard (Con)]

Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.

However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I will speak to Amendment 238 in my name. Does my noble friend the Minister agree that “know your customer” and anti-money laundering—KYC and AML—are not working optimally? There is a plethora of examples that we could look at; I will not do so. The simple truth is that they are not fit for purpose and are not achieving their aims. They are not providing the environment that we would want to conduct our financial services in. Does my noble friend the Minister not agree, therefore, that it is high time we had a thorough review of the regulations to put in place a system that works and is inclusive, efficient and effective?

If we look at some of the practical elements, to put it in terms, is it not time that we stopped messing about with gas bills? That takes us to an amendment in a previous group on digital ID, which would go far in resolving many of the issues around KYC and AML. Does my noble friend the Minister not agree? The difficulties that we have heard about and which many members of the Committee may have experienced in all areas of the financial services landscape could be effectively resolved if we resolved the current situation with KYC and AML. It is resolvable; when she comes to respond, my noble friend the Minister could simply say, “I will resolve it”.

[Lord Eatwell (Lab)]

My Lords, on the point made by the noble Lord, Lord Holmes, surely these regulations are derived from the Financial Action Task Force. We would usurp international agreements if we modified our regulations in a way that was outwith the positions established by the FATF.