Financial Services and Markets Bill

Lord Kirkhope of Harrogate Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

This group of amendments demonstrates the strength of feeling across the House and offers a range of approaches. I suggest that all the interested parties meet to decide on the best and simplest way forward with a single amendment that we can bring back on Report.

[Lord Kirkhope of Harrogate (Con)]

My Lords, I rise for a moment to support the amendments from my noble friends Lord Moylan and Lady Noakes. I spent much of my political career in Brussels, where I used to complain regularly that various directives and regulations were gold-plated when they came back to this country. We were always very stern in the implementation of just about everything that came from the European Union. I and others in this Room played some part in preparing these things, including the anti-money laundering regulations. In fact, for a long time, when I went places I endured the description, “Here’s the expert on money laundering”. This was not very nice, but it got even worse with the PEP issue.

My noble friend Lady Noakes is right to say that we should not dwell too much on our personal problems with this. I will not, although I have had problems—more particularly, one of my sons, when he tried to open an account with an emerging bank. Everything was going swimmingly until someone contacted him and said, “Are you by any chance related to a Lord Kirkhope?” He said yes, presumably thinking that it would help him get a better deal, “That’s my father—thank you very much”. That was that. He then received a communication some two weeks later telling him that his application for an account had been declined, but they would not give him a reason and apparently could not do so under our regulations in this country. It was obvious why he was declined; that information had been enough to make them use some kind of prescriptive arrangement whereby everybody is looked into not individually but under a general approach, subject to having a PEP in your family.

Again, I will not get into the point from my noble friend Lord Moylan that we can now ignore the anti-money laundering regulations or do something different. That might well be the case but I do not want to revive discussions on Europe in this debate. However, we were very careful when we drew up the regulations. It was very much a British component that insisted on the regulations being employed or deployed proportionately. The word “proportionate”, which has been referred to already, was conveyed with those regulations to us in this country. The problem was that, when we entrusted the implementation of the regulations into the hands of the FCA we failed to oblige it to follow a proportionate approach in the way we should have done, although the word “require” is set out in its instructions. It did not do so, has not done so and appears not to be willing to do so.

I simply want to make it clear that consultations, which I think my noble friend Lady Noakes mentioned a moment ago, seemed to take place, particularly in 2017. It was perfectly clearly stated how these things should be implemented. It was not expected that those holding politically exposed positions in the UK should be regarded as anything other than a low risk, rather than the enhanced risk that we seem to be stuck with. I suggest that it is too late for consultation and that it must be done by way of legislation. Very strict instructions must then follow to the financial institutions, past, present and future, that they must not deploy the draconian measures and inquiries that are totally unnecessary and unjustified.

[Viscount Trenchard (Con)]

My Lords, I apologise that, in the earlier group of amendments, I omitted to declare my interests as a director of two investment companies.

All four amendments in this group seek in different ways to find a solution to the problem that all noble Lords, and members of their families, suffer as a result of being designated as politically exposed persons. Regulation 35 of the 2017 regulations provides that a regulated person must “manage the enhanced risks” arising from having a business relationship or conducting a transaction with a PEP. It assumes that such a business relationship always carries a higher risk than a business relationship with a person who is not a PEP. From my experience, I suggest that the reverse is the case—in other words, entering into a business relationship with a Member of your Lordships’ House carries, in general at least, a lower degree of risk than the average risk posed by a customer of a relevant person.

However, the regulation requires more personal KYC information to be provided in respect of PEPs than for other customers. As noble Lords are well aware, it is currently hard enough for anybody to open a bank account or an account with any financial institution. Long-standing customers with active accounts with banks who fail to answer emailed requests for proof of address or the like find their account summarily closed, without any appeal. It is very difficult and time consuming to speak to anyone with responsibility for such decisions. Quite extraordinarily, when a credit card operator obtains KYC information for a customer with regard to one account, it does not automatically regard that information as being equally relevant to other accounts held with it by the same customer. The situation for PEPs is disproportionately worse.

My son, who was resident in Taiwan, was nominated by his employer as a signatory on his corporate bank accounts but was subjected to entirely disproportionate questioning which caused a considerable degree of irritation. He experienced the same thing when proposed by his employer as a signatory on a Singapore bank account. He has now had to agree with his employer not to be nominated on the corporate bank accounts in Korea, where he now resides, and in several other jurisdictions.

I have put my name to Amendment 227, well introduced by my noble friend Lady Noakes, which sensibly seeks to disapply the application of PEP status for this purpose by the FCA in respect of UK citizens. Amendment 215, in the name of my noble friend Lord Moylan and others, would place an obligation on the Treasury to achieve the same thing. But these amendments do not solve the problem for overseas relevant persons. I hope that the adoption of more proportionate and reasonable guidance, as proposed by my noble friend Lord Kirkhope in his Amendment 234, to which I have also added my name, might eventually be copied by overseas regulators too.

In any event, I ask my noble friend the Minister to respond positively and to commit to take action on these proposals. It really is time that something was done about the expensive waste of time caused by the current regulations.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, to deal with the question of the risk assessment undertaken as part of this work, as I have already said, the Government have engaged closely with law enforcement and the intelligence community to inform our understanding of the risk in this area. It is a difficult area, and it is not particularly appropriate to go into detail on the contents of the risk assessment, given the sensitive nature of the information. As I also set out, the context is that there is potential for those in positions of influence to make domestic PEPs targets for influencing behaviour by serious and organised criminals and hostile state actors. The potential links between domestic PEPs and criminal activity vary, including abuse of political position for personal gain or links to overseas corruption.

I very much understand the desire by those directed by the regulation to hear more about that risk assessment. It was a question that I anticipated and to which I sought to get as full an answer as possible for the Committee. I am under constraints, but I shall none the less take away the requests from noble Lords to see whether there is any more I can do to provide more information on that point.

[Lord Kirkhope of Harrogate (Con)]

I follow up the inquiry of my noble friend Lord Attlee about statistics—whether parliamentarians have actually fallen foul—and take it one stage further. With regard to the particularly appalling way in which family members are implicated here, do we have statistics on how many family members of parliamentarians have fallen foul? Surely, they are implicated simply because they are related to someone who is classified as a PEP. We have mentioned human rights, but this provision cannot be fair or proper and should surely be removed.

[Baroness Penn (Con)]

As I said, I shall take away the point about what further I can say about the work on the risk assessment. The focus has been on looking at risk, and my understanding is that, in considering that, the question of close associates or family members—I believe that is the terminology in the regulations—has also been considered.