Financial Services Bill

Lord Whitty Excerpts

Monday 15th October 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I should like to know which Minister is going to respond to this—it may help.

We are pleased that the FCA now has a new competition objective and wider competition powers. However, these powers do not go far enough to enable the FCA to deliver its objectives. As the Bill stands, the FCA will still have to refer cases to the OFT, or its successor body, which will then conduct a market analysis before being able to take further action. This looks like a slow and rather unfair regulatory process, even after the merger of organisations that will take place under another Bill.

We therefore support the view of the Joint Committee that the FCA should have concurrent competition powers in respect of a market investigation reference, together with the OFT. That would empower the FCA to conduct its own economic analysis and deal with distortions in the market without the need for any delay.

We have heard a lot about the lessons learned from PPI, which highlight the need for the FCA to have the market investigation reference powers. In 2005, the FSA signalled its concerns about the PPI market and began an investigation. After the investigation, the FSA took its concerns to the OFT, which had to look at the issues before passing the case on to the Competition Commission. Eventually the Competition Commission passed the issue back to the FSA. The process took far longer than necessary and allowed the banks and other credit providers to continue selling PPI to their unsuspecting customers.

Giving the FCA concurrent MIR powers would allow the FCA to escalate concerns about competition failures quickly and efficiently, with any failures addressed before consumer detriment crystallised. By giving the FCA powers equivalent to the OFT under Section 131 of the Enterprise Act 2002, a single organisation would be able to tackle significant market issues such as PPI without the substantial delay through referral to another body. We therefore seek to amend the Bill accordingly and I beg to move.

[Lord Whitty]

My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available—I will not say normally, but if necessary—to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.

I am very mindful of an equivalent sector—namely, energy—where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation—that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

[Lord Sassoon]

My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.

This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.

Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA’s competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT’s response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.

As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee’s recommendation, the noble Baroness will feel able to withdraw her amendment.

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Moved by

[Lord Whitty]

189BA: Clause 40, page 128, line 5, at end insert—
“Collective proceedings234J Collective proceedings and collective redress
(1) In respect of claims to the courts covering a significant number of consumers with equivalent or near equivalent interests or complaints, the following procedures will apply.
(2) The court may, on the application of a person (“the representative”), by order authorise the representative to bring collective proceedings before the court in respect of financial services claims of a kind specified in the order.
(3) “Collective proceedings” means proceedings brought by the representative on behalf of persons who are entitled to bring (or have brought) proceedings in respect of the specified kind of claim.
(4) “Collective proceedings order” means an order under subsection (2).
(5) A collective proceedings order may be made only if it appears to the court that the specified kind of claims raise the same, similar or related issues of fact or law.
(6) A person may be authorised under subsection (2) to bring proceedings even if the person would not otherwise be regarded as having any interest, or any sufficient interest, in the proceedings.
(7) Proceedings may be authorised under subsection (2) even if each represented person does not have a claim of the specified kind against all of the defendants to the proceedings.”

[Lord Whitty]

My Lords, I shall also refer to Amendment 189BB. Both amendments make up two pages of amendment to an already massive Bill, but the text should be familiar to some of the Minister’s officials in the Treasury, for reasons that I shall explain in a moment.

The Bill, by way of a pretty radical restructuring of the regulation of the financial services, greatly enhances the power of the Bank of England. One hopes that it will greatly enhance the consumer protection power of an FCA replacing a relatively feeble FSA. It enhances some consumer powers, and it arguably also enhances the role of the consumer panel and the financial services ombudsman, but it does nothing to enhance the position and powers of consumers.

The amendments suggest that we should move to a system of collective redress when the misdemeanour, or illegality sometimes, of the financial institutions involves a large number of people. The amendments would provide for the Secretary of State for the Treasury to come forward with regulations allowing for collective redress procedures.

We have had a number of such issues over the years, from mis-selling through to PPI, which has been debated substantially today and during other consideration of this Bill. Those issues involve a range of problems and a very large number of people. We know that the inability of individual consumers to get redress is difficult. We know that it also creates the kind of confusion to which my noble friend Lord Kennedy of Southwark referred just now, with intervening bodies and claims management companies confusing rather than enhancing the position for the individual consumer. Whether tens or thousands of people are involved, a more collective approach would sometimes be desirable. The PPI scandal, for example, could probably have been largely resolved by now for the vast majority of potential claimants. Instead, we are getting a “fishing trip” from the CMCs, and a huge number of claims will take years to settle and involve the banks, the intermediary companies and the courts in time, effort and cost.

The issue of collective redress in consumer matters has a considerable history. It is true that all consumer bodies have agitated under successive Governments to provide for a general system. The last Government and previous Governments were resistant to a general power. However, in the wake of the financial collapse and financial scandals, it was recognised by the last Government and many around this issue that some provision was necessary on the financial side. Indeed, the Bill that was produced in 2009-10, which became the Financial Services Act, included in its original form whole sections on collective redress—Clauses 20 and onwards of that Bill. They were considered in part very briefly by the House of Commons. They were not rejected by that House; there was actually support for those provisions at Second Reading from those on all Benches. Of course, they ended up being dropped by the advent of the general election in 2010 and the rather peculiar Byzantine proceedings that we call in constitutional jargon “wash-up”, and disappeared. I particularly objected to them disappearing, but by then it was too late.

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[Lord Newby]

The Government believe that collective proceedings, in the appropriate circumstances, can deliver access to redress and a potential deterrent effect. That is why the Government have been consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law—including whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. The Government are considering the consultation responses and hope to publish their response before the end of the year. We want to take the opportunity to learn from the outcome of that consultation and reflect on the implications for the financial services sector before proceeding to legislation.

The noble Baroness may say that her amendment would provide adequate time for consultation. However, her amendment specifies that small businesses should be able to bring collective proceedings on an opt-out basis. The type of persons who might bring collective actions, whether on an opt-in or opt-out basis, are substantive questions on which BIS has been consulting. We think that it is a lot better to await the outcome of the BIS consultation and reflect on the implications for financial services than to seek to pre-empt that process and require a particular model now. If the Government were to conclude from this exercise that it would be appropriate to bring forward legislation on collective proceedings for the financial services sector, any proposals should then be subject to proper consultation.

As an addendum to the second part of Amendment 189BC, I note that the Bill would not prevent bodies representing small and medium-sized enterprises that fit the relevant definition of “consumers” from making super-complaints. As was explained in another place, the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill.

We have considered this matter carefully, and I can inform the House that the consultation document that the Government will shortly publish covering this issue will include the proposal that the Treasury should be able to designate bodies that primarily represent the interests of small to medium-sized enterprises as super-complainants and that this will be reflected in the draft criteria.

I hope that, with the reassurance that the Government will consider proposals on collective proceedings carefully and that they will shortly consult on allowing SME representatives to make super-complaints, the noble Lord and the noble Baroness will feel able to withdraw their amendments.

[Lord Whitty]

My Lords, I was aware and was of course pleased that BIS is once again consulting on this issue. Given the way in which these amendments are framed, the Bill would simply say that the Treasury had the power to bring forward regulations for collective procedures and collective redress on an opt-in or opt-out basis. They do not specify more than that. They do not, unlike my noble friend’s amendment, actually specify a timescale. Having this in this Act would therefore allow the considerations arising from the more general consultation to be tailored to the financial services arrangements without any new primary legislation. I would therefore have thought the Minister would welcome that.

In the discussions in the run-up to the Financial Services Bill in 2010—noble Lords do not often hear me say this—the Treasury was much more progressive on these issues than was BIS. Of course, we are under new management now and maybe that has changed. There are some very special situations in the financial services sector, and we do not want to wait for another PPI, another pension mis-selling, another sub-prime mortgage crisis or whatever where we have to construct from scratch a new system to protect consumers, both business and individual.

These amendments would allow the Minister to do that, after the general consultation if necessary, so I do not accept the argument that we have to wait for that consultation before they are included here. It is clear to me and, I think, to a lot of people that the financial sector needs such provisions, and I would not like to be in a position 18 months down the line where we had to go back to a new form of primary legislation in order to provide them. I therefore advise the Minister to have another look at these amendments, but for the moment I shall withdraw my amendment.

Amendment 189BA withdrawn.