Financial Services Bill

Lord Leigh of Hurley Excerpts

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

[Lord Leigh of Hurley (Con) [V]]

My Lords, I refer your Lordships to my registered interests and extend a very warm welcome to my noble friend Lord Hammond of Runnymede. I have sat through many of his speeches, including the famous one in which he described why “Spreadsheet Phil” is inappropriate, but this was exemplary. His maiden speech and that of the noble Baroness, Lady Shafik, were excellent.

The final EU withdrawal agreement was a success, but, as has been discussed in this House and elsewhere, it was light on financial services. Mark Carney, the former Governor of the Bank of England, said this time last year that the City of London must not be a “rule-taker” after Brexit, effectively outsourcing the regulation and supervision of our global financial centre. Therefore, while adopting the EU rulebook in the first instance has delivered much-needed continuity and stability, we must now think about what comes next. That must surely be an approach that sees the UK continue to set global standards in prudential regulation and consumer protection, without losing sight of our broader objectives of innovation and competition.

There are three initiatives worthy of mention that can reinforce the initial steps taken in the Bill. The first is the future regulatory framework review. The Government’s response to this will give us the clearest indication yet of the vision for financial services post Brexit. I note the stress placed on equivalence of outcome. This should give us more room for interpretation, and indeed the opportunity to revisit many areas of law which were effectively gold-plated into UK law when we were EU members.

The second is the productive finance review. This concerns the means to unlock more capital to increase productive capacity in the real economy. I mention it here because it should also look at the impact of regulation on institutional capital flows into key areas such as infrastructure and technology. EU directives IORP and Solvency II limit such capital flows with prohibitive capital charges and should be looked at immediately. There is £6 trillion in UK private pensions alone that could be unlocked for more productive purposes.

The third is the Kalifa review into UK fintech. The Chancellor and my noble friend Lord Gadhia recently spoke of the need to see a second big bang in the City. Fintech is a key part of that. I hope the review proposes reforms as transformational as the first big bang was for the City.

Turning to the specifics of the Bill, there are commendable measures that will advance the competitiveness of financial services within our current regulatory envelope. Asset management remains our most globally significant subsector. Therefore, the measures to update the regime for third-country investment firms is to be commended. Similarly, introducing a more proportionate prudential approach to regulating investment firms will lower their costs of doing business, and better reflect underlying risk. On the other side of the coin, there are important measures on supervision and consumer protection. In particular, I commend the review that former FCA director Chris Woolard is leading on “buy now, pay later” lenders, where there is mounting evidence of bad debt, mis-selling and very bad practice. However, on FCA enforcement, there is a balance to be struck, and this Bill is, I am afraid, another opportunity missed to strike that balance. I am referring to the FSCS levy, FCA enforcement and the endless ex-post powers of the Financial Ombudsman Service.

The FSCS levy is due to soar by a third, to over £1 billion, with one of the reasons given being the cost of compensating SIPP consumers. However, there is mounting evidence that the FOS has been overreaching itself in its decisions against those very same SIPP providers. For example, many SIPP providers provide execution-only services on behalf of a client—the clue in the phrase “self-invested”—and yet claims of mis-selling are upheld, even where no financial advice is proffered and no advisory permissions are even held.

Frankly, this has the appearance of a racket. Blessed by the FCA, the FOS adjudicates, the FSCS is jacked up accordingly, the FS industry is forced to pay, driving some literally to bankruptcy, and the money flows seamlessly back to the FCA. It is a system with no accountability before the law, and no right of appeal. In short, it is unjust, and at a time when the broader powers of the FCA are being debated. Will the Minister consent to revisiting this important issue? It is a shame that the Bill does not seek to rebalance the relationship between the FCA and FOS and bring some common sense into how FOS operates.

Members of this House might recall that I have been banging on about FOS for some time, and I have had the pleasure of meeting the City Minister to discuss it. Well, something fell into my lap this summer. I received an unsolicited credit card from a company called NewDay. I had not asked for a credit card. A day or so later, a neighbour spotted someone rummaging in my outdoor letter box. It was a scam. Someone had ordered a card in my name and was seeking to retrieve the PIN subsequently sent in the post. A simple remedy would be to require credit card recipients to confirm that they had ordered one before it is sent to them. I suggested that to the company; it refused, so I complained to the FOS and it took six months for the FOS to tell me it could not fix the issue as the FCA handbook, which, as we know, governs FOS, states that as I was not yet a customer, I was not an eligible complainant under the FCA dispute resolution—rule 2.7.2, if you are interested—so it would take it no further and, as a result, others will now get scammed in this way.

That shows a dramatic shortage of common sense. Does the Minister agree that it is not clear that FOS is fit for purpose, and that the Bill provides us with an opportunity to ensure that FOS and the FCA do the job Parliament had envisaged, or to let us change the way FOS and the FCA operate?