Financial Services Bill

Lord Tunnicliffe Excerpts

Monday 12th November 2012 Lords Chamber

[Baroness Noakes]

Will the Minister elaborate on what he said about the role of this amendment in relation to the fostering of a successful financial services industry in this country? The UK is a service-led economy, and the largest sector within it is the financial services sector. If we are looking at sustainable growth in the UK economy in the medium term, and probably in the long term as well, we need to look to a successful financial services sector. I thought that I heard the Minister say something along the lines that this is really about the non-financial services sector and about underpinning economic growth outside it. It seems to me that the amendment enables the regulators to take into account the importance of a successful and sustainable financial services sector that is competitive internationally, because it is through that that we will produce growth in the UK economy. I will be interested in the Minister’s views.

[Lord Tunnicliffe]

It is not often that I rise to offer sympathy to the Minister. He was quite right to say that the generality of this amendment, which in my recollection came from all sides of the House, particularly from these Benches, was stressed by us in another place. Every now and then, one has to look at a massive Bill such as this and recognise that the final test of all legislation is that it contributes to the general good. I think that the two lines of this growth amendment produce the right reminder to the regulators that they have to contribute to the general good—I share the emphasis placed by the noble Baroness, Lady Kramer, on the medium and long term—and I warmly welcome it.

[Lord Newby]

I am grateful for the contributions from all noble Lords who have spoken. I do not want to go into a lengthy response at this time of the evening, but not because I do not feel that we know the answers to the questions. I shall deal with a couple of specific points that were made. My noble friend Lord Hodgson asked in particular about crowd sourcing. To a certain extent, my noble friend Lady Kramer dealt with that. Government Amendment 26, which we debated earlier this evening, goes some way to recognise the validity of crowd sourcing. As my noble friend Lord Hodgson will know, there is already one fully authorised, equity-based crowd-funding platform operating here and growing. We will continue to consider how we can help this and other platforms grow. It is all part of increasing diversity of funding, which we strongly support.

My noble friend Lady Noakes asked whether this amendment relates to the financial services sector as it relates to the rest of the economy and whether the Government accept that sustainable growth in the financial services sector is desirable. We agree that it is crucial. The financial services sector plays a major part in the UK economy, not just in helping the rest of the UK economy to grow, but in its own right. It is a very significant source of export earnings. The whole of the Bill is designed to provide regulatory underpinning that will mean that the financial services sector is safe and secure and can grow in the medium and long term. I hope that with those comments the House will feel able to support the amendment.

--- Later in debate ---

[Lord Newby]

The government amendments in this group make a change to the way that with-profits policies will be regulated under the new framework. We had a very useful debate on this subject in Committee. As my noble friend Lord Sassoon stated at the time, with-profits policies give rise to a particular risk of unfairness because the benefits that policyholders receive are largely at the discretion of the firm. The tensions between the firm treating current and future policyholders fairly, and maintaining safety and soundness, are especially acute. It is therefore difficult to separate the prudential and conduct issues in the regulation of “with-profits”, much more so than in any other type of financial services business. The Government’s main objective, therefore, is to ensure that there is clarity in decision-making in this area. The approach that was originally envisaged in the Bill was that this clarity would be delivered by giving the PRA sole responsibility for ensuring an appropriate degree of protection for policyholders in relation to the making of discretionary payments.

The noble Baroness, Lady Drake, raised a number of concerns including the possibility that excluding the FCA from decision-making would lead to consumer detriment, as the prudentially focused culture of the PRA may lead it to pay insufficient attention to the fairness element of policyholder protection. The Government have now given further consideration to this, and on balance we agree that this is an area where the Bill could be improved. We have therefore brought forward amendments that will ensure that both the FCA and the PRA have a responsibility in relation to the regulation of with-profits, rather than giving sole responsibility to the PRA. This will mean that the FCA has a full role in consumer protection, as it does in other firms. The PRA and FCA will have to put in place an MoU setting out their respective responsibilities in this area.

However, to preserve the sense that there should be a final decision-maker, the PRA will be given the power to require the FCA to refrain from actions that conflict with its general or insurance objectives, for example if it considers the FCA action could harm the safety and soundness of a particular with-profits insurer or with-profits insurers generally. To ensure scrutiny and accountability, any such veto must be published unless the PRA considers it is against the public interest to do so. The Government’s view is that this approach strikes the right balance between giving the FCA a much stronger mandate, and preserving clarity of decision-making and responsibility in this exceptionally complicated area. I hope that the amendment meets the noble Baroness’s concerns, and I beg to move.

[Lord Tunnicliffe]

My Lords, I thank the Government for bringing forward this group of amendments, which meets the concerns raised by the noble Baroness, Lady Drake. I particularly thank the Minister for mentioning her in his speech. She regrets that she cannot be here, but I am sure she will feel her efforts were worthwhile by resulting in this group of amendments.

Amendment 47 agreed.