Pension Schemes Bill [HL]

Debate between Lord Hutton of Furness and Earl Howe

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Sherlock]

My Lords, the six amendments in this group in my name and that of my noble friend Lord McKenzie of Luton are probing amendments designed to get Ministers to reassure the Committee that there is a robust system of regulation and supervision for those involved in the dashboards. Rather than go through them one at a time, as there are overlapping amendments from other noble Lords, it might be easier if I simply ask the Minister to clarify some of the key aspects of the supervision and regulatory regimes which the Government have in mind.

I was delighted last week when the Minister indicated that the Government have acceded to the request from my noble friend Lady Drake and many others around the Committee:

“we shall be introducing a new regulated activity under the Financial Services and Markets Act 2000 to reflect the provision of dashboard services.”

Hurrah, say I. That is marvellous. The Minister continued with only very slightly less certainty:

“Clause 118 provides the power to set out detailed requirements ‘for qualifying pensions dashboards’. It is also likely that this will be linked to the new regulated activity outlined by the Financial Conduct Authority.”—[Official Report, 26/02/20; col. GC 183.]


I think we are being told that this means providing a dashboard service will be added to the regulated activity order. I am assuming that is what that means.

Those requirements in Clause 118 may include

“what … information is to be provided”

and

“how the ... dashboard service is to be … operated.”

They may also,

“require a dashboard service to comply with standards, specifications or technical requirements published … by ... the Secretary of State ... The Money and Pensions Service”

or another specified person. Crucially they may,

“require the provider of the pensions dashboard service to be a person approved … by … the Secretary of State … the Money and Pensions Service”

or another specified person. The last of those is crucial.

If running a dashboard service is to be an FCA-regulated activity, should that not mean that those running it have to be approved by the FCA—in which case, ought that not to be made clear? It could be another body, but the bodies named do not include the FCA. If the activity is on the ROA, does that mean that the FCA will then be able to use its full range of FiSMA powers of supervision and regulation on anyone providing dashboard services? Can the Minister further confirm that that would mean that complaints about anything to do with the dashboard could be made to the Financial Ombudsman Service?

This is the train I am trying to establish. It is great that the activities are regulated by the FCA. Will the people running it have to be FCA approved and therefore subject to the full range of FiSMA powers? It seems that that is where the real firepower is located. Alternatively, are the Government envisaging that a dashboard service might be run by an organisation that was not FCA approved, supervised or regulated? Would there be a real risk of consumer detriment if the FCA cannot use its full range of powers on anyone using a commercial dashboard?

Provision of information to a dashboard also needs to be subject to a scheme of regulation and compliance. Information will come from various sources. Will the provision of information from trust-based schemes to a dashboard be regulated by the TPR? What about the information provided from contract schemes? Will that come from via the FCA? Will it be directly under FCA supervision or by the fact that they regulate the firms providing the information? Who will oversee the provision of information from the state and make sure it is accurate? Where does the consumer go to complain about their data? At the moment, if a bank misuses your data, the ICO will deal with the bank, but the consumer will go to the Financial Ombudsman Service to deal with detriment. What will happen here?

My biggest concern is what will be done with data provided on dashboards and the potential for mis-selling. Amendment 68 would require that those providing dashboard services would have to act in the fiduciary interest of savers. My noble friend Lord Hutton just made a compelling case for that. Our argument is that this is a special situation where the state has mandated that consumers’ data should all be gathered together in one place. That is helpful, but it is a little like saying, “Rather than having them wandering freely across the hillside, all the lambs have been gathered into one pen”. In that case, you want to be pretty sure that there is a good lock on the gate and that anyone coming along pretending to be a shepherd can be spotted early and—“Stop. Enough of this analogy. Ed.” I think the point is made.

Because of this higher challenge, there should be a higher duty of care to the consumer. If an organisation running a dashboard service is regulated by the FCA, it will be subject to the “treating customers fairly” FCA standard, but this goes higher. It becomes even more important if it is possible that any of those people will not be subject to the full range of FCA supervision and regulation powers. There should be a duty of care to the consumer. We can see the benefit of gathering information/lambs in one place, but it of course makes the information/lambs much easier to access. Can the Minister give us some reassurance on those points?

[Earl Howe]

My Lords, the amendments in this group are designed to ensure that consumers are placed at the heart of dashboards and that the Financial Conduct Authority is given responsibility for certain aspects of that. I say straightaway that I wholeheartedly agree with this aim. What I cannot agree with is the way of achieving it proposed in the amendments.

The Government are persuaded that a strong regulatory regime is key to maintaining public confidence in dashboards. There are existing powers which we will use to introduce a new regulated activity for dashboard providers. We can do this by amending the regulated activities order set out in Section 22 of the Financial Services and Markets Act 2000. This will bring the provision of a qualifying dashboard service within the regulatory and supervisory the remit of the FCA. There is no need for the new dashboard-specific regulated activity to be in the Bill.

We are working with Her Majesty’s Treasury and the FCA to agree the nature and scope of the changes. Legislation amending the order will be brought forward in due course. I can also confirm that the Financial Services and Markets Act covers Northern Ireland, meaning that any new regulated activity would also extend to Northern Ireland. It is important to note that the new regulated activity will apply only to dashboard providers. Pension scheme trustees and operators are already within the regulatory remit of either the Pensions Regulator or the FCA. The requirement on pension schemes relating to the provision of information via dashboards will be set out in regulations and FCA rules pursuant to this Bill.

The noble Baroness, Lady Sherlock, asked whether the FCA will be able to use its full range of powers; yes, it will. All the FCA’s existing powers will be available where a dashboard provider must be FCA-authorised. To answer the noble Lord, Lord Hutton, the Financial Conduct Authority has an existing framework to ensure that authorised firms take the interests of customers into account. The Government will again set out in regulations the conditions that a dashboard will have to meet. This will be supported by new, dashboard-specific regulated activity, as I have just explained.

Strong consumer representation on the industry delivery group, alongside new regulations and a new, dashboard-specific regulated activity, will ensure that the design is in the interests of consumers and that they are protected. The regulatory framework for the new regulated activity will be proposed in the FCA’s consultation on the corresponding handbook rules and guidance.

[Lord Hutton of Furness]

I hear what the Minister is saying and am very grateful for the thoroughness with which he is responding to these issues, but will pension scheme members have any direct legal redress against a dashboard services operator should things go wrong? As I am hearing him, most of the remedies seem to lie in the hands of regulators or others, but if my data is misused or I feel that some problem has occurred as the result of the inappropriate organisation of a pensions dashboard service, where do I stand?

[Earl Howe]

Consumers will have various modes of redress available to them if they are not served legally or properly by their scheme provider or the dashboard provider. Our response to the consultation on dashboards highlighted the need for a clear liability model for the whole dashboard system. The objective is to enable users to identify easily where to raise a complaint or a dispute if a dashboard fails to work, or if they fail to receive their pension information. We have asked the Money and Pensions Service, through the industry delivery group, to consider how this might operate and to make recommendations. The Pensions Regulator and the FCA will regulate compliance by pension schemes and the Information Commissioner will have a role in ensuring that the disclosure of pension information takes place in accordance with data protection legislation. Only FCA-approved bodies can provide a qualifying dashboard. Only qualifying dashboards can connect to the infrastructure, and they will fall under the full regulatory regime.

New Section 238G, introduced by Clause 119, ensures that the regulator will be able to monitor and enforce compliance with the new requirements, in keeping with the existing regulatory regime. The FCA also has the power to enforce rules that it will make under this legislation. Part 14 of the Financial Services and Markets Act 2000 allows the FCA to enforce any requirement on authorised persons, including those setting up or operating a personal stakeholder pension.

Pension Schemes Bill [HL]

Debate between Lord Hutton of Furness and Earl Howe

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Lord Hutton of Furness]

I hear what the Minister says about prosecuting authorities but can he turn his remarks to the subject of why in those circumstances the Secretary of State should be considered a legitimate prosecuting authority? He has not mentioned that. I understand his points about the DPP and the Pensions Regulator but what about the Secretary of State?

[Earl Howe]

I was coming to that but I will deal with it now. The Secretary of State for Work and Pensions can institute proceedings for an offence under new Sections 58A and 58B in England and Wales only. This drafting mirrors the legislation of similar offences, such as insider dealing in the Criminal Justice Act 1993, as well as offences in the Financial Services and Markets Act 2000 and the Insolvency Act 1986, where the Treasury or the Insolvency Service could bring prosecutions.

The inclusion of the Secretary of State here enables the Government to ensure that the most serious conduct that harms pension schemes will remain punishable in the future. For example, if the ability of the regulator to bring about proceedings is hindered or the regulator ceases to exist—or exists in a different form—this provision could cut in. It is not envisaged that the Secretary of State will institute prosecutions where the Pensions Regulator or, where relevant, the Director of Public Prosecutions has decided against it. Further, where the power to institute prosecutions is exercised, the guidelines from the Code for Crown Prosecutors will apply.

[Lord Hutton of Furness]

Where will that be set out? If the Secretary of State will not prosecute in those circumstances, how will that be made clear?

[Earl Howe]

It will be made clear—in practice, if anything—but the Secretary of State will reserve the power for the rarest of occasions, I imagine, in the circumstances that I outlined. The normal course would be for the traditional prosecuting authorities to act. Only where the Secretary of State sees an egregious example of someone likely to get away without prosecution for reasons beyond the control of the prosecuting authorities will he or she step in. I cannot generalise about the circumstances. That power is there, as in the other Acts that I mentioned, very much as a long-stop provision.

Amendment 35, in the name of the noble Baroness, Lady Sherlock, proposes a new clause requiring the Pensions Regulator to publish guidance on how it intends to use the new criminal offences. We think this amendment is unnecessary. The Pensions Regulator already has a general prosecution policy in place which sets out the matters it considers when using its prosecution powers. The Pensions Regulator intends to issue further specific guidance explaining its approach to prosecuting the new offences under Part 3 of the Bill.

I fear there is also a practical difficulty, because it is unclear how the amendment could be implemented. The amendment would require the Pensions Regulator to publish guidance pertaining to the new offences at the point of Royal Assent. The problem with that is that the provisions in Part 3, which include the new criminal offences, are subject to changes up to the point of Royal Assent and it would be unwise to pre-empt the will of Parliament by preparing guidance based on draft provisions. It is expected that, following Royal Assent, the regulator will consult on the contents of the guidance for the new offences and expects to publish this guidance prior to commencement. It is clearly important that the industry’s views are sought on what is contained in the guidance, and the timing requirement proposed in this amendment would mean the regulator would consult before the offences are finally settled.

A further reason the amendment is unnecessary—indeed, I would say inappropriate—is due to the inclusion of the phrase

“guidance … concerning the operation of law”.

This phrase has a very specific meaning, and implies that the intention behind the amendment is that it will be for the Pensions Regulator to determine how the legislation should be interpreted. This is of course a matter for the courts, which will make the decision as to whether an offence has been committed in a particular case. Therefore, while the regulator’s guidance will provide assistance as to how the regulator intends to use the new criminal offences, it will not be definitive; nor could it or should it be, since something deemed to be reasonable in one case, for example, may not be reasonable in another. I should mention, for completeness, that there are a number of technical issues with all these amendments which could cause confusion. I shall not go into them here, but I can explain the details to noble Lords if necessary, outside the Committee.

My noble friend Lady Neville-Rolfe asked what kind of estimate we make of the number of people who might go to prison under these criminal offences. Clearly, irresponsible treatment of pension schemes is rare; however, it is important that where we have wilful or reckless behaviour, appropriate sanctions are available. The Pensions Regulator has successfully brought 16 convictions over the past two and a half years—it is of course for the courts to decide who gets convicted and what the penalty should be. I hope it is widely accepted that the Pensions Regulator must meet a higher threshold before a criminal prosecution can be commenced. As the Pensions Regulator has already commented, it would use these new powers only in the right circumstances.

The noble Lord, Lord Hutton, asked a further question about the words “any person” and what other legislation uses that phrase. It is the norm for criminal offences across the statute book to be drafted as applying to “any person” and I can give him examples—I would be happy to write to him.

It is clear that the majority of employers want to do right by their scheme. However, we must ensure that there are sufficient safeguards to protect members’ pensions from the minority who are prepared to put them at risk. If the category of persons whose conduct is within the scope of the offences as set out in Clause 107 were to be narrowed in the way that some of the amendments propose, we believe that the deterrent provided by the offences would be weakened, as indeed would the safeguards built into them. In contrast, making the scope of the activities caught by the offences wider, as separately proposed by other amendments, not only risks removing a key consideration of the level of impact of the conduct but also reduces safeguards. The Government have therefore sought to strike a balance to ensure that members’ benefits are protected while taking into account impacts on business.

I apologise again for speaking at such length, but I hope that the comments I have made will allow noble Lords to feel comfortable in not pressing their amendments.