Financial Services Bill

Lord McNicol of West Kilbride Excerpts

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

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in this first group of amendments, and I congratulate the noble Lord, Lord Sharkey, on the way he introduced it. There could barely be a better amendment to start Committee.

In 2017, during the passage of the Financial Guidance and Claims Bill, now enacted, there was much discussion of, and amendments tabled around, a duty of care, with support from all sides of the House. The response then was that the time was not right: we had to get through Brexit and then look at financial rules and regulators in the round. Four years on, with Brexit done, I think the time is more than now to consider duty of care in all its manifestations, as the noble Baroness, Lady Bowles of Berkhamsted, set out.

In saying that, like other noble Lords I am extremely grateful for the briefings and unstinting hard work undertaken by many organisations in this area. It is invidious to single out two, but I will, not least the Money Advice Trust and Macmillan Cancer Support. Duty of care was an issue in 2017; it was an issue way before that. The Covid crisis has not brought about the need for a duty of care; it has merely shone the brightest and starkest of spotlights on the issues right across the financial services sector.

It is difficult to put it any clearer than this, from a client of Macmillan Cancer Support in one of her darkest moments: “It felt like I was fighting my bank as well as fighting cancer”. Fighting my bank as well as fighting cancer—that is a more than good enough reason to think extremely carefully about how to bring about a duty of care. That one individual speaks for hundreds of thousands.

My Amendment 129 in this group seeks to introduce rights of action for SMEs for breaches of the FCA handbook. I believe the amendment would bring clarity and consistency to how the handbook operates. These rights of action are currently available only to private persons but, when we consider this in the round, not least in the world of FS when we think of fintech founders, are the “Ss” of SMEs—micro-businesses—essentially that different from private persons? Of course I understand the concept of the corporate veil and limitation in all its forms but, in essence, when it comes to operating in a regulatory framework, as we currently have, are micro-businesses that different from private individuals, who currently have this right of action?

Imagine this: currently, a micro-business has only the letter of the contract to take action against the bank. This seems wholly unsatisfactory and more than a little asymmetric. The nature of the relationship between a small business and a bank should be much more effectively reflected in the rulebook. Need I suggest some of the ways this may have helped in the past, with Libor, forex, the GRG, and Lloyds/HBOS activities in Reading? In particular, RBS’s global restructuring group was one of the most shameful episodes in this country’s banking history.

Fundamentally, the amendment can be summed up in a simple line: in reality, how can an SME or micro-business take a bank to court? Amendment 129 offers the appropriate level of support and clarity to our SMEs, and consistency in the operation of the rulebook. Our SMEs are the beating heart of our economy. I suggest we use the amendment to put some head alongside that heart.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, at this stage I have not put my name to any amendments, but I will speak in support of Amendment 4, tabled by my noble friend Lord Tunnicliffe, and make a few relevant points. Before I start, I make the Grand Committee aware of my financial interests as set out in the Lords’ register and echo the point from the noble Lord, Lord Sharkey, about the imbalance of power between the lender and the individual—a critical point that I am sure we will come back to in Committee.

Low financial resilience and overindebtedness are huge problems for individuals and the country. UK households have nearly £250 billion of outstanding consumer credit debt and more than 42.5 million people have used consumer credit. Those are the figures for 2019, pre Covid. In 2020 and into 2021 the problem has only worsened. The FCA recently found that the number of people suffering from low financial resilience increased by one-third to 14.2 million people in October 2021. That is nearly one-quarter of the UK adult population.

We know that low financial resilience is not just about overindebtedness. It can be caused by a combination of low savings and erratic family income. Erratic income and low levels of savings are not issues that the FCA can solve—government intervention and education are required to tackle those. However, overindebtedness is an issue that the FCA can help to address. Amendment 4 and a number of the other amendments in this group, as well as the later Amendment 8, would give the FCA some of the tools to do so.

As set out by the Government, the FCA has three key functions: protecting consumers, keeping the industry stable and promoting healthy competition between financial service providers. Of those three critical functions, I would like to concentrate on the first, of protecting consumers. Amendment 4 takes that current responsibility and would add to the Bill a clause which would give the Financial Conduct Authority a duty of care and, later, under Amendment 8,

“rules … to promote financial wellbeing”.

These would enhance the FCA’s powers to protect consumers—something which I am sure we all agree is necessary.

Christopher Woolard, chair of the recent Woolard review, said:

“Most of us will use credit at some point in our lives. So, it’s vital that we have a fair market that works for everyone. New ways of borrowing and the impact of the pandemic are changing the market, with billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty”.


The Woolard report sets out 26 recommendations to the FCA, some on working with government and other bodies to make unsecured credit markets fit for the future. I hope that the Minister and Her Majesty’s Government will look at the amendments tabled and, where those issues and recommendations raised by Woolard align with them, we will see some government amendments or an acceptance of the amendments laid to the Bill.

This is specifically pertinent in relation to “buy now, pay later” products. On 13 January in the other place, Stella Creasy moved an amendment that would have required the BNPL industry to be regulated by the FCA. The proposal was defeated by the Government, by 355 votes to 265. The Woolard review makes the point, on the regulation of the unregulated “buy now, pay later” sector:

“BNPL products which are currently exempt from regulation should be brought within the regulatory perimeter as a matter of urgency. The use of BNPL products nearly quadrupled in 2020 and is now at £2.7 billion, with 5 million people using these products since the beginning of the coronavirus pandemic”.


The report continues by stating that

“more than one in ten customers of a major bank using BNPL were already in arrears. Regulation would protect people who use BNPL products and make the market sustainable.”

Seeing the light, the Minister, John Glen, agreed that Her Majesty’s Government need to act and bring BNPL into the scope of FCA regulation. I was hoping to see a government amendment to this effect, as the noble Lord, Lord Sharkey, said earlier, but I am sure it will be forthcoming at later stages of the Bill.

I also bring to the Committee’s attention an article in the Observer yesterday, Sunday 21 February, entitled “High-cost lenders ‘exploit NHS workers on pandemic frontline’”. The article highlighted a number of individual cases, as well as the alarming and eye-watering interest rates of over 1,300% being charged by some high-cost credit providers.

The article is based on a University of Edinburgh Business School research report, which makes it evident that the signs of financial vulnerability within the NHS workforce are being ignored by high-cost lenders on an industry-wide basis. Overindebted NHS workers are now struggling with unaffordable loans. They did not receive them from unlicensed backstreet lenders: more often than not, they got them through FCA-licensed and regulated high-cost lenders. This is why Amendment 4 is so important in stating

“the general principle that firms should not profit from exploiting a consumer’s vulnerability, behavioural biases or constrained choices”.

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I am not averse to financial services firms helping through their social responsibility programmes, but I believe these amendments take us down the wrong road. I have less concern about Amendment 134, which provides for a review. But, if that were to proceed, it would need to take proper account of the role of schools in financial education and financial inclusion.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, I will be brief, as I set out many of my concerns and issues when speaking earlier on the first group.

I support Amendment 8, proposed by my noble friend Lord Stevenson of Balmacara. Before I start, I would like to make the Grand Committee aware of my financial interests, as set out in the Lords register.

As touched on in Amendment 4 earlier, low financial resilience and overindebtedness are a huge problem for both individuals and the country at large. We should all do all that we can, especially under the current circumstances, to push back against those issues.

Either we are saying that there is a problem and we need to do something about it, or we are saying that there is not a problem and we just carry on as before. With the figures and the personal stories of overindebtedness and unaffordable, unsustainable financial predicaments, I believe that there is a problem that does need resolving.

The FCA recently found that the number of people suffering from low financial resilience had increased by one-third to 14.2 million people. That is one-quarter of the UK adult population. |In earlier amendments, we heard a number of noble Lords, and a little from the noble Baroness, Lady Neville-Rolfe, saying that any increase in regulations, bringing in a duty of care or a duty to promote financial well-being, was either not the responsibility of the FCA or, in some earlier comments, would put more costs on individuals in increased fees and on businesses with increased administration. I do not believe that that is the case with the amendment as laid out by the noble Lord, Lord Stevenson. If you look at the text of it—and I understand it is a probing amendment—you see that the power of the FCA to make general rules includes a power to require authorised persons to promote the financial well-being of consumers in carrying out regulated activities under this Act.

I am very new to this sector and I may be a little naive, but I believe that one of the most significant drivers of costs to the industry is from non-repayment or defaulting on loans. We need financial well-being and literacy to be increased. The noble Baroness, Lady Neville-Rolfe, is right that it needs to start in schools and carry on through employment and employers, but that should not preclude the Financial Conduct Authority being able to step in and help. There is a benefit to businesses as well. If financial well-being can be increased, the number of defaults from people falling into indebtedness or failing to pay reduces, thus increasing profitability of a product, then in turn reducing the cost of that product to individuals and businesses. There is a lot in where the amendment proposed by my noble friend Lord Stevenson is trying to take us.

We touched a little on the Woolard review and its 26 proposals, and I hope that we will see a bit more of those. The noble Lord, Lord Holmes, touched on fintech. With the increase in open banking and the ability to look at individuals’ accounts, better and more detailed decisions can be made on how a product or a business moves on. My noble friend Lord Stevenson referred to the University of Edinburgh Business School report, which it carried out for Salad Projects, looking at the health and well-being of NHS workers who had applied for a loan. The report provides a unique insight into their financial lives, based on millions of individual transactions. What came out of that was information about their low financial resilience—the ability of those working in the NHS to deal with a financial shock to their lives. Often it was just a small shock, but they were unable to tap into the bank loans that many of us can take; they were forced into the high-cost credit loans market.

If we have the development and promotion of financial well-being, I hope we will see a reduction in those who are driven into that sector. This amendment will help to deliver that, but it does not preclude delivering that in schools or the workplace. The FCA is a powerful body that can help push it even further.

[Baroness McIntosh of Pickering (Con) [V]]

My Lords, I am delighted to support this group of amendments. I take this opportunity to pay tribute to the noble Lord, Lord Stevenson, and my noble friend Lord Holmes for their huge contribution to this field of financial inclusion. I single out the noble Lord, Lord Stevenson, not just for his role on the Front Bench but previously in chairing StepChange. He will be greatly missed from his Front-Bench responsibilities, and I am sure it will not be long before we see him return.

I also congratulate my noble friend Lord Holmes on being indefatigable in his campaigning for financial inclusion and bringing our attention to fintech. I join the authors of these amendments in identifying a need to address this issue, and I hope that my noble friend, in summing up, will answer this point. The noble Lord, Lord Stevenson, has asked for a high-level response, and I shall use that expression later—I like it. Perhaps we might get something more from my noble friend.

No less of an authority than “You and Yours”, of which I am an avid listener—I think there are two compulsory programmes we should listen to, one is that and the other, I have momentarily forgotten what it is, is the one that gives us all the figures and responses—spent the best part of a programme looking at credit ratings. What struck me is that often it is through no fault of an individual that they find that their credit rating has been so badly affected that they can no longer qualify for any credit. It can take months, if not years, to redress this.

I am concerned that if my understanding is correct Expedia is no longer acting for the Government in this regard. Can my noble friend confirm that we are down to two credit rating agencies? Do the Government share my concern that we should address this area of financial inclusion, financial awareness and each of us being aware of what our credit worthiness and credit ratings are? Amendments 8, 9 and 134 have identified issues that are worthy of attention in this Bill and I look forward to the response from the Minister.

Financial Services Bill

Lord McNicol of West Kilbride Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Lord Bruce of Bennachie (LD) [V]]

My Lords, that was a powerful speech by the noble Lord, Lord Sikka, and clearly, a lot must be addressed. I served on the EU Financial Affairs Sub-Committee and the Treasury Select Committee, and currently serve on the EU Services Sub-Committee. Therefore, I am well aware of the contribution the sector makes across the UK.

The UK helped to shape the regulations and rules for the EU, but we have now left. The sector has consistently argued that a reputation for high standards and effective regulation is important to the confidence the world expresses in the UK’s financial institutions—notwithstanding the failures that have occurred. The combination of the European Parliament and the UK Parliament ensured that regulators have been accountable. I do not claim to be a technical expert on what is a complicated sector, but I recognise the dangers of regulation becoming an unaccountable closed book.

I support the case for a properly resourced specialist joint committee to ensure that regulators are held accountable, not so much on technical detail but in terms of a prudential framework and overall direction. That would be in the interests of the regulators and government Ministers as well as those who depend on a well-regulated and reliable sector. I share the concern that what the Government are trying to do will ultimately bite back if there has been no proper parliamentary oversight in a future scandal. The Government and the regulators will have nowhere to hide, but that will be very little comfort to people who may suffer from regulation failures.

Financial services are distributed throughout the economy. People often refer to the City of London, but we know that jobs and activities are distributed throughout the UK and have been growing in all the devolved Administrations. Edinburgh is the UK’s most important financial centre and one of the most important in Europe. According to TheCityUK, financial services contribute £13 billion, or 9.4% of GVA, to the Scottish economy. More than 160,000 people are employed in financial and related professional services, which is nearly 6% of Scotland’s national employment. The sector includes banking, fund management, insurance, life assurance and pensions, asset servicing and professional services.

Interestingly, Scotland accounts for 24% of all UK employment in life assurance and 13% of all banking employment. Given that Scotland has 8.5% of the population of the UK, this is clearly disproportionately important. According to Scottish Development International, there are more than 2,000 financial services businesses, supported by 3,650 professional services firms. Scotland’s financial and professional services exports account for 40% of all Scottish services exports.

Having said that about Scotland, tens of thousands are employed in the sector in Wales and thousands in Northern Ireland, and the number is growing in all the devolved areas. My Amendment 137 takes this into account and seeks to ensure that the devolved Administrations are consulted about any proposed changes in financial services regulations. It is clearly in the interest of the sector to have clear and common regulations across the United Kingdom, which is why this amendment looks for consultation only. It merely seeks to ensure that any factors of particular importance to a devolved Administration are, as far as possible, accommodated. I can see no conceivable advantage to financial services companies to diverge from UK regulation. After all, as the figures I cited show, a significant part of the financial services sector in Scotland is serving the whole UK market. The last thing it needs is a distracting push separating it from its customers, either by erecting barriers at the border or by promoting an alternative Scottish currency, which would undermine the raison d’être of serving the UK from Scotland, or a “sterlingisation” agenda that would put huge pressure on the public finances in Scotland.

My amendment seeks to avoid any unintended negative consequences. It is not intended to cause delay or to encourage special pleading. Given the particular importance of Scotland’s role in delivering life assurance and banking, it is surely right that any changes being considered to regulations affecting these sectors are not proceeded with until appropriate consultation has taken place.

That said, it is also important to recognise the role of professional support services, given Scotland’s distinctive legal system and, for example, accounting qualifications. The expertise that exists in Scotland should in any case surely be drawn on to inform regulations if and when changes are being considered. I share concerns that the Government are proceeding to build an architecture that lacks an adequate parliamentary dimension. It is perfectly reasonable to ask the legislatures of the devolved Administrations to be involved in contributing to the shaping of regulations, at least in their broad prudential thrust.

I look forward to hearing what the Minister has to say. I hope he will recognise the force of the arguments put by noble Lords about the need for a significant and effective parliamentary dimension and a recognition that the devolved Administrations, especially Scotland, should be able to contribute constructively and positively to that outcome.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, one of the joys of being at the end of such a large group of amendments and a long speakers’ list is that very much of what needs to be said has already been said, so I will be brief.

The contributions from across your Lordships’ Committee, from the noble Baronesses, Lady Noakes and Lady Bowles, and my noble friend Lord Davies, outlined the importance of parliamentary and democratic oversight and the different levels and ways of delivering it. The contribution of the noble Lord, Lord Holmes, on the right levels of oversight also helped move the debate on.

The balance between regulatory authorities’ powers and those of Parliament is critical. My noble friend Lord Sikka clearly outlined in detail many of the failures of the regulators and of the FCA, so getting the levels right is critical. I add my support for those amendments that I am pushing forward. I look forward to the Minister’s response and to how we move this forward to Report and Third Reading.

[The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)]

The right reverend Prelate the Bishop of St Albans has withdrawn, so I call the next speaker, the noble Baroness, Lady Kramer.

Financial Services Bill

Lord McNicol of West Kilbride Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the Room to wear face coverings except when seated at their desks, to speak sitting down and to wipe down their desks, chairs and any other touch points before and after use. If the capacity of the Committee Room is exceeded, or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.

I will call Members to speak in the order listed. During the debate on each group I will invite Members, including Members in the Grand Committee Room, to email the clerk if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request.

The groupings are binding. Leave should be given to withdraw amendments. When putting the question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says “Not Content” an amendment is negatived, and if a single voice says “Content” the clause stands part. If a Member taking part remotely wants their voice accounted for if the question is put, they must make this clear when speaking on a group.

Amendment 99

Moved by

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[The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)]

I have received one request so far to speak after the Minister. I call the noble Baroness, Lady Bowles of Berkhamsted.

Financial Services Bill

Lord McNicol of West Kilbride Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

My Lords, the next speaker is the noble Baroness, Lady Bennett. The speaker after her, the noble Baroness, Lady Morgan, has withdrawn, so the speaker after the noble Baroness, Lady Bennett, will be the noble Lord, Lord Davies.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a pleasure to follow the noble Lord, Lord Stevenson of Balmacara, and I offer my thanks for his support for the concept of Amendment 12, to which I shall speak. It appears in my name and is kindly supported by the noble Lord, Lord Sikka, and the right reverend Prelate the Bishop of St Albans.

Amendment 12 seeks to secure a discounting of debt for people entering proposed statutory debt repayment plans—something that the noble Lord, Lord Stevenson, noted has already occurred in Scotland. I set out in Committee that that is a large group of people with incomes above those eligible for debt relief orders, but with assets and income generally below those covered by voluntary agreements on bankruptcy. All those other agreements operate in ways that can result in debt being cleared in a relatively short period, much shorter than those to be covered by statutory debt repayment plans. I will not repeat all that detail again.

However, this amendment represents a development of an amendment presented in Committee to secure a fair debt write-down in respect of debts sold on the secondary market. For that initial amendment and this amended one, I pay tribute to the large amount of work done by the Centre for Responsible Credit, from which noble Lords will have received a briefing. While a strong argument exists to support this proposal, entirely legitimate concerns were raised in the debate that the impact of such a move on the operation of the secondary market would need to be properly considered. The noble Lord, Lord True, also raised a concern about the need for equitable treatment of debtors in the scheme. Taking those concerns on board, this new amendment, rather than being prescriptive, is permissive in nature and seeks to ensure that discounts on debt are secured, where appropriate, with the full agreement of creditors.

Amendment 12 recognises that many creditors listed on debt repayment plans, regardless of whether the debt originated with them or they bought it on the secondary market, will often prefer to receive a lump sum as full and final payment as opposed to low levels of instalments spread out over many years. As a result, many creditors already offer a significant discount on the total level of debt if a lump-sum settlement can be made. While the StepChange debt charity has a dedicated team to provide advice to debtors concerning possible full and final settlements, not all debt management plan providers do so. There arises a potential conflict of interest, as SDRP providers are likely to be reimbursed on a percentage basis of the total debt collected. Securing discounts for big debtors would reduce their revenues.

This amendment would therefore ensure that the Government are provided with a power to instruct SDRP providers, where appropriate, to enter into debt settlement negotiations on behalf of debtors entering the scheme. Hopefully this is not needed, but it is important that such a power exists.

In addition, it ought to be possible for SDRP providers to go further. With appropriate funding and regulation, business models could be encouraged that would allow SDRP providers to themselves buy out, and therefore discount, debts registered on their plans. For example, in recent months we have seen instances of debt of £10,000 being discounted by as much as 40% in return for full and final settlement. Enabling such debts to be bought out and subsequently collected by SDRP providers would mean the debtor would have to repay only £6,900, even after taking into account a 15% fee for the provider. It should be possible to achieve a result that is beneficial to creditor and debtor alike. I stress that building this negotiated settlement approach into the SDRP is likely to be welcomed by creditors, who in many cases are already prepared to discount heavily for lump sums in full and final settlement.

It is not my intention to push this amendment to a vote at this stage, but I seek a commitment from the Minister to continue to explore and work on this issue. I hope he can commit to a meeting between the department and interested noble Lords to see how we can take this forward, possibly in regulation.

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[The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)]

The next speaker after the noble Lord, Lord Holmes, will be the noble Baroness, Lady McIntosh of Pickering.

[Lord Holmes of Richmond (Con) [V]]

It is a pleasure to speak to this group of amendments, and I declare my interests as set out in the register. I congratulate the noble Lord, Lord Stevenson, on the way in which he introduced this group, and on all the work that he has done in this area, not least with StepChange. More than a step change, he has done more than many marathons around this subject. Not just your Lordships’ House, but the nation, is in his debt for the work he has done on debt.

I also thank the Minister for his engagement throughout the Bill. I know that he is completely committed to this area, and I congratulate him on the engagement and the time he has spent with me and other noble Lords. It is safe to say that this is an issue that will run longer than this Bill. As with so many other issues, Covid puts a new lens on debt, and enables more people to understand that it is not necessarily just for others. Potentially, with a slight twist of circumstance, we are but a heartbeat, or a breath, away from being in tough financial straits. I congratulate the noble Lord, Lord Stevenson, and I look forward to hearing the response from the Minister.