Financial Services Bill

Lord Hunt of Wirral Excerpts

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

[Lord Hunt of Wirral (Con)]

My Lords, I first draw attention to my interests as set out in the register and I congratulate my noble friend Lord Hammond of Runnymede on a maiden speech of great breadth and insight, which served to underline what a considerable asset he is going to be to these Benches in particular and to this House more widely. As my noble friend reminded us, he has served with distinction in a number of departments, culminating in his time as Chancellor of the Exchequer. How right he was to point out huge sectors of our economy, in particular financial services, where we are not in the business of finessing a new relationship with the European Union but are yet to ensure that there are any arrangements at all. When my noble friend speaks on economic matters, he does so with rare authority and I look forward to hearing much more from him.

There is one specific point that I would like to develop in my remarks today. The Financial Services and Markets Act 2000—FiSMA—set out four objectives for the Financial Services Authority, the FSA, as it then was: market confidence, public awareness, the protection of consumers and the reduction of financial crime. In addition, the FSA was required to have regard to a number of other factors, including efficiency, proportionality, innovation and

“the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom.”

The Financial Services Act 2012, in response to the 2008 banking crisis, removed that requirement because it was argued that it had served to dilute the robustness of regulation. This argument was founded on an entirely false dichotomy between effective regulation and international competitiveness, for the truth is that a robust, respected and proportionate regulatory regime is an intrinsic part of the UK’s competitive advantage in financial services. We now have the future regulatory framework review. In its phase 2 consultation paper, which I happen to have with me, the Government acknowledged this:

“A gap in the original FiSMA model is that, while it set high-level general objectives and principles, it did not provide for government and Parliament to set the policy approach for specific areas of financial services regulation.”


A partial move towards more activity-specific regulation is seemingly adumbrated in Schedule 3 to the Bill, which has been referred to by the noble Lord, Lord Sharkey. This would require the PRA, when considering capital requirements regulation, to have regard to

“the likely effect of the rules on the relative standing of the United Kingdom as a place for internationally active credit institutions and investment firms to be based or to carry on activities.”

A similar obligation is to be imposed on the FCA when making Part 9C rules in relation to internationally active investment firms. So competitiveness is edging slowly and surely back into the picture sector by sector and it is a process that I believe many of us want to see accelerate in the months ahead. I also hope that the Government will now come forward with a clear action plan to establish the UK not only as the world centre for broking—that is to say, the selling of insurance and reinsurance—but as the natural home for insurers and reinsurers.

I warmly welcome the Bill because it suggests a direction of travel that will deliver the high-quality, agile and responsive regulation that we need, putting the UK at the forefront of the world market in terms of competitiveness, consumer protection and innovation.

Financial Services Bill

Lord Hunt of Wirral Excerpts

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

On SMEs, in November Mr Sam Woods, the Bank of England’s deputy governor for prudential regulation and, as your Lordships will know, chief executive officer of the PRA made a Mansion House speech—or rather, since we are living in the era of Covid, a Mansion House-labelled e-speech—in which he highlighted the importance of designing a proportionate “strong and simple” prudential regime for small firms. Moves such as this are important because they show that regulators have an eye to their rules working in a way that supports competition, which I detect as the underlying theme of this clause.

[Lord Hunt of Wirral (Con)]

My Lords, I draw attention to my interests as set out in the register. I recognise that these are probing amendments, but I exhort my noble friend the Minister not to underestimate either the strength of feeling on the question of international competitiveness or its importance to a sector vital to our economic recovery, as my noble friend Lady Neville-Rolfe stressed in her impressive speech earlier in this debate. The foundation stone for the regulation of financial services is still FiSMA—the Financial Services and Markets Act 2000—albeit in a form substantially amended by subsequent legislation. As the noble Lord, Lord Eatwell, reminded us, the regulatory structure is currently subject to a fundamental review.

The financial services future regulatory framework review and phase 2 consultation closed at the end of last week. The early indications of a general direction of travel are welcome. The original version of FSMA set out those four clear objectives for the new Financial Services Authority, the FSA: market confidence; public awareness; the protection of consumers; and the reduction of financial crime. In addition, the FSA was required to have regard to a number of other considerations, which included such obvious factors as efficiency, proportionality and innovation. They also included, as the noble Lord, Lord Sharkey, reminded us—and I quote verbatim

“the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom”

and

“the need to minimise the adverse effects on competition that may arise from anything done in the discharge of those functions”.

As other speakers have reminded us, after the crash of 2008, the incoming coalition Government inherited a severe recession and an unstable and untenable financial situation. They therefore undertook a deep consideration of regulation. In the debates in another place on what became the Financial Services Act 2012, concerns were repeatedly expressed to the effect that regulation under the FSMA had been not so much light touch as soft touch. Since 2012, the entire financial services sector, broad and diverse as it is, has effectively been punished—put into the naughty corner, as it were —almost entirely because of the alleged failures of the banks. The regulatory brush used was simply too broad and therefore not fit for purpose. The requirement to take account of international competitiveness was jettisoned because, it was argued, it might dilute the robustness of regulation.

I have also taken a close look at the Second Reading debate on the then Financial Services Bill, on 11 June 2012, in which one colleague after another raised this question of competitiveness, including my noble friends Lord Trenchard, Lord Hodgson and Lady Noakes. So this is a “Groundhog Day” debate, but I hope no less persuasive for that. My noble friend Lord Trenchard certainly wins a prize for consistency and constancy, because he eloquently argued that day:

“Some of us believed that competition and the competitiveness of our financial markets should have been made an objective of the FSA rather than merely one of the principles to which it had to have regard. I welcome the fact that the FCA is given a competition objective in the Bill, but it is inadequate in that it falls short of a responsibility to maintain or enhance the competitiveness of the UK’s financial markets”.—[Official Report, 11/6/12; col. 1245.]


As both the Association of British Insurers and the London Market Group have rightly pointed out, promoting the international competitiveness of the UK financial services sector to nurture its contribution to our economic strength must now be restored to the objectives of the regulators. This would bring our regulators into line with other, competitor jurisdictions, such as Hong Kong, the United States, Singapore and Australia. In its phase 2 consultation paper, the Government explicitly acknowledge:

“A gap in the original FSMA model is that, while it set high-level general objectives and principles, it did not provide for government and Parliament to set the policy approach for specific areas of financial services regulation.”


A move towards increasingly activity-specific regulatory principles is helpfully adumbrated, as my noble friend Lord Blackwell pointed out, ahead of the outcome of the FRF consultation, in Schedule 3 to the Bill. This would require the PRA, when considering capital requirements regulation, to have regard to

“the likely effect of the rules on the relative standing of the United Kingdom as a place for internationally active credit institutions and investment firms to be based or to carry on activities.”

This seems a welcome step back towards an old principle and, quite possibly, a Rubicon of significance crossed—or, more accurately, re-crossed. On that basis the Bill, while welcome in its own terms, is merely the beginning of a vital process which will determine the character of the post-Brexit UK financial services sector, potentially for a generation or more.

Once the results of the consultation have been digested, I hope to see far more acknowledgement in regulation of the great differences that exist between different elements of financial services, along with an explicit recognition that our international competitiveness matters. It is entirely spurious to claim that a regulator mindful of international competitiveness is likely to be a weak regulator. It could and should be a very effective one indeed.

As the noble Lord, Lord Mountevans, has just pointed out, our competitiveness relies on our strength. Our greatest strength is surely our reputation for providing the best advice and the best products at the best price, something no regulatory race to the bottom could ever deliver. If we really have the ambition to become the global centre for insurance and financial services—a realistic ambition, I argue, if we work together to deliver upon it—then we simply must get this right. I very much hope that the Bill does not go down as a missed opportunity.

[Baroness Kramer (LD)]

My Lords, inevitably with so many amendments to one Bill, this group is something of an omnibus collection. I have some sympathy with some of them—for example, the country-by-country reporting amendment tabled by the noble Lord, Lord Tunnicliffe. While I disagree very much with the noble Lords, Lord Hodgson and Lord Holmes, on their overall support for an international competitiveness objective in other areas, they are pointing out a need for the regulator to look again at issues such as proportionality and how to adapt to the new digital world. However, that does not seem to need to be put into law. This is really advice to the regulator, and I hope that they will take a great deal of that good advice on board.

I want to reply to the noble Lord, Lord Hunt, because he echoed an opinion raised by the noble Lord, Lord Blackwell, but very effectively countered by my noble friend Lady Bowles. He talked about activity-specific regulation creating the opportunity for some significant divergence in the regulatory environment. The lesson of 2008 was that the financial services sector is linked systemically. As my noble friend Lady Bowles pointed out, the crash in 2008 started with largely fake and junk mortgages in the United States. It worked its way into various securities instruments that were sold to people in the UK who did not understand them, but should have.

The underpinning consequences of risk were also completely misunderstood. The way that derivatives were traded and structured created a potential risk of losing liquidity overnight. This is exactly what happened with the high street banks in the UK. They became competitive with others in the financial sector to develop the kinds of profits that they saw being made by rival companies, pushed their credit standards to the point where, frankly, they were no longer standards, and chose methods of funding themselves that made them vulnerable to any volatility in the overnight markets. This is not an industry in which we can separate the different pieces into silos. They are all interlinked and that must underpin any form of regulation that we have.

Financial Services Bill

Lord Hunt of Wirral Excerpts

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

[Lord Hunt of Wirral (Con)]

My Lords, I draw attention to my interests as set out in the register, particularly as one of the independent directors of the LINK scheme, the UK’s largest cash machine network. I support my noble friends Lady Neville-Rolfe, Lord Holmes of Richmond and Lady McIntosh of Pickering, on Amendment 37E in particular.

It is, of course, far too soon to be drawing definitive conclusions based upon our experiences of the past year or so. However, it is striking how the pandemic has tended to accelerate some existing trends. One has been the declining use of cash. For many people, this decline is something to be embraced. Last summer and again in recent days, pubs and restaurants have begun to reopen, almost universally on the basis of card payments only; the commonly preferred method is to order from the table and pre-pay through a mobile device—no cash, no cards even, and with minimised physical contact. Home delivery of food has expanded dramatically. It is therefore hardly surprising that withdrawal of cash from ATMs almost halved during the worst of the pandemic. I know people who have stopped carrying cash. However, as my noble friend Lord Holmes of Richmond pointed out, this approach does not work for everyone.

Think, for example, of the disadvantages for isolated, elderly people who have to rely upon neighbours for food shopping. Unless they bank online, how can they repay them? My noble friend’s amendment reminds us that even when a trend is broadly welcome to the vast majority of people, it can isolate a minority from the mainstream, sometimes with cruel and unjust consequences. Financial exclusion, digital exclusion, social exclusion and economic exclusion all too often go hand in hand. I know from my work with LINK that those in charge of the UK financial system are acutely aware of these problems and challenges. Indeed, they are working tirelessly to address them, and LINK in particular is committed to maintaining free access to cash across the country, for as long as consumers want and need it.

As part of this commitment, LINK maintains a financial inclusion programme. This has so far provided 1,800 communities with a new, free-to-use ATM service, by providing financial subsidies to operators who install the machines. Consumer and community groups, local authorities, Members of Parliament—including Members of this House—and indeed any other interested parties, can help to identify further, suitable sites. Some providers of ATMs base their business model on charging for transactions. That is a perfectly valid approach, but no one should underestimate just how precious a resource a free-to-use ATM is.

It may be that this amendment is too prescriptive, and I look forward to hearing from my noble friend the Minister on the wording, but these challenges can be overcome only by partnership, including banks, the Post Office, retailers, regulators and the Government, all founded upon the latest possible information and analysis. This will require leadership and a positive, co-operative spirit.

We would be wise to take care in drawing any lasting conclusions from our experience of the pandemic. Much more analysis needs to be done of how financially marginalised people, particularly those without bank accounts, have fared since the beginning of 2020. I am confident that the trends and suggested responses set out in Natalie Ceeney’s excellent report of March 2019 will broadly stand the test of time. All that has changed is the acuteness of the challenge and the urgency of coming together to fashion a sustainable response.

--- Later in debate ---

[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.

[Baroness Kramer (LD)]

My Lords, on reading Amendment 37D I think I recognised some of the distinct phraseology to denote an expert hand in its drafting, so I am exceedingly hopeful that the noble Lord, Lord Holmes, has been effective in persuading the Government that this is language they can accept and live with.

Of course, I join in all the calls to make sure that access to cash remains. Despite Covid and all the pressures that have encouraged people to change to digital and electronic payments, 5 million people have stuck to cash, and those people deserve to be served as much as anyone else. Indeed, the point made by noble Lord, Lord Hunt, that digital systems can always go down and that you had better have a back-up, did not occur to me but strikes me as fundamentally important.

My concern is this: I hope the Government do not think this is all they need to do and that this is part of a broader programme of ensuring access to cash. I spoke to quite a number of the storekeepers in my local area. It is a mixed area, with a lot of wealthy and middle-class people but also many people living on a former council estate, now housing association. Among that range, quite a number of people, for a whole variety of reasons, still want to use cash—but I could not find a single shop that would be willing to do cashback without a purchase. In fact, they did not want to do cashback with a purchase in most instances, simply because they did not want to have the cash on the premises, especially at night. Frankly, because of all the various bank branch closures, it would be at least a 35 to 40-minute drive to get to a place where you could deposit the cash overnight. Then you would have to collect it in the morning, which of course would make no sense because most of the shops would be open before the bank was available to hand it over.