Financial Services and Markets Bill (First sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I am chair of the all-party parliamentary group on blockchain.

[Gareth Davies (Grantham and Stamford) (Con)]

I am a vice-chair of the APPGs on environmental, social, and governance and on financial markets and services. I also spent 14 years in financial services and my wife works in financial services.

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[Stephen Hammond]

Q So, like you have just said with regard to the first question, we should look at ways of making sure that that is firmly set down, rather than just a principle.

Emma Reynolds: Indeed.

[Martin Docherty-Hughes]

Q May I ask you both about clauses 21 and 22, and digital settlement assets? Ms Reynolds, you talked about high standards. I wonder if you could both say whether you agree that the definition of a digital settlement asset is satisfactory and robust enough to safeguard consumers. It is rather broad.

David Postings: I think it needs to be broad, because the digital asset environment can change quickly, and if you define things too narrowly, you risk missing the next wave of change. Yes, I think it is good and wise to define it broadly.

[Martin Docherty-Hughes]

Q But if the technology is moving that fast, how is Parliament—and, therefore, any legislation—going to keep up with it? That is a concern.

Emma Reynolds: The definition is broad and, as I understand it, it gives both the Government and the regulators a way to regulate in this area and bring things into the regulatory perimeter. It is our understanding that stablecoins will be the first of those digital assets. This is a very fast-moving area; the EU has its MiCA—markets in cryptoassets—regulation, which you will be aware of, which is a very broad framework. I think there is some advantage for the UK in being the second mover here, because there is some concern about some of the things MiCA has closed down. For example, it is not allowing stablecoin wallets to accrue interest. We are watching very carefully in this space, but I understand your concern about consumer protection. I think that is front of mind for our firms, and they want a level playing field as well.

[Martin Docherty-Hughes]

Q Would that include the smaller and medium-sized companies that might be involved, not just the big players? That halo effect is a concern for others, because the definition is literally to safeguard them, not the smaller and medium-sized players in the market.

Emma Reynolds: That could be a concern, yes.

[Emma Hardy]

Q David, may I ask you about the role of banks in tackling fraud? The legislation focuses narrowly on APP scams. Would you welcome the introduction of a broader national strategy to tackle fraud, delivered by key Government Departments and agencies, law enforcement, major banks and wider partners in the financial services sector? Would you welcome something on fraud that is a bit broader than what is in this Bill?

David Postings: I am not sure this Bill is the right mechanism for it. We have been working closely with Government and regulators on a fraud strategy for some time, so anything that takes the agenda forward has to be welcomed, because fraud is a huge burden on society and a rising crime, but I am not sure that this Bill is necessarily the right Bill.

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[Tulip Siddiq]

Q I hear what you are saying, but it is not the same thing. I know those issues still exist with other forms of payment, but for stablecoin and digital assets, consumer protection levels need to be monitored more; consumers are more vulnerable, just because of the lack of knowledge. I am trying to get to whether you have specific tactics to ensure access, consumer protection and competition.

Chris Hemsley: We need to continue working closely with the two other principal regulators that tackle these issues—the FCA and the Bank of England—as we do today. We do that today with other technologies. We want the full framework to be turned on. With the FCA, we for example ensure that individual payment firms protect people’s money. You are absolutely right; in a world where people might not understand what a particular asset is, and its potential to reduce or substantially change in value, there is a really important role for the FCA in ensuring that firms are dealing with their customers properly. There is then a role for us in ensuring that the systems work, and that the rules are open, transparent and protect consumers, system-wide. The Bank of England ensures there is sufficient security and resilience, so that the systems actually work when we need them to, as we increasingly rely on them.

[Martin Docherty-Hughes]

Q Perhaps we could come back, Mr Hemsley, to the issue of stablecoin. Some countries have actually banned its use; the European Union, as we have heard from the markets in cryptoassets regulation, is going ahead, along with the United States in terms of the Commodity Futures Trading Commission and the Securities and Exchange Commission, both at state and federal level, with getting regulation in process.

I am glad to see that there is some regulation in the Bill, but you used terms such as “future-proofing”. With this technology, we bandy around terms such as “innovation” and “future-proofing”. What does that actually mean, in real financial terms? Frankly, it is not the type of language that I, as a legislator, would like to see used in regulation of a market. It is not just that it is unfamiliar; it does not seem like the correct kind of language or descriptives to use when we can have an impact, predominantly on consumers who might use these commodities and assets digitally. What do you mean by “future-proofing”?

Chris Hemsley: That is a very good challenge. I want to ensure that the full regulatory framework that we have in the UK is turned on and applies properly, so that we can manage consumer protection and competition risks. That is what I mean in terms of that definition. That applies particularly to how payment systems regulation works. We have some relatively broad definitions of what can be covered. The Bill helpfully clarifies that those broad definitions of where regulation can apply are sufficiently broad. The way that the regulation works is that it still requires the Treasury to issue a designation—the Minister issuing a designation of a system—and our statutory duties and checks and balances then kick in. It is shorthand. If I try a slightly more precise framework, you need to ensure that the initial definition is sufficiently broad, so that those subsequent decisions on if and how something should be regulated can apply.

[Martin Docherty-Hughes]

Q Forgive me, but you said there are similar issues. Frankly, there is nothing new under the sun. I am a fan of the technology, but it is the technology that has changed, not the issue. My concern is that these broad definitions, using terms such as “innovation” and “future-proofing”, do not give us the proper ability to scrutinise what is in front of us, because we are not talking about the reality on the ground. You face the same issues either in a fiat currency or a digital fiat currency.

Chris Hemsley: I agree with what you said. There are some familiar risks, and some new ones, that we need to be alive to. The fact that for the first time we could see the use of mass payment systems that are not linked to fiat is a new issue, and one that we need to manage.

I come back to an earlier point, which may help you to take decisions on the elements around definitions of what can be regulated. There is a series of gateways, almost: before something is regulated, it needs to fall within the definition of the Bill, and the Bill helps with that. There is then a test in the Financial Services (Banking Reform) Act 2013 that turns on the PSR’s powers: something needs to be designated by the Secretary of State for it to be regulated, and then our powers can apply. I want that to work. I want the definitions, the designation and our powers to work in this new context. I can see these new issues, as well as the familiar competition access issues that we have had to deal with in the past.

[The Chair]

I call Emma Hardy. You have five minutes.

Financial Services and Markets Bill (Second sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[Craig Tracey]

Q On the technological side of it and the flexibility, do you think there will be a culture shift as a result of the Bill to try and encourage the regulators to be more nimble and flexible?

Sir Jon Cunliffe: With the greatest of respect, I do not think I need my culture shifting, within the regulatory framework that we have at the moment. I have made a series of speeches on new technology and the benefits that new technology can bring and the importance of that, so I would not regard myself as in that position. Others might have a different view and are obviously entitled to it, but I certainly would not accept that, if I can make that point clear. You can look at the published statements of the Bank of England and the speeches we have made.

We welcome schedule 6 of the Bill because it will give us the powers to put in place a regulatory framework for stablecoin and digital assets used as payments. I would argue, because I hear this from lots of the fintech community in London, that they want a regulatory framework. They do not want a system where the public think, “This is unsafe. What happened to Terra and LUNA could happen to me. I could be scammed. I am betting in an unfair casino.” They actually want a regulatory system. They want it to be designed to recognise their technology.

There will always be tension between where we put the risk cursor and where the private sector would like it to be put. That is a discussion we have to have. The importance of this Bill is that it will give us the powers to get on and do it. I do not think I would accept the criticism that our culture is anti-innovation and inflexible. We need the powers and the tools to do that job and that this Bill will give us them.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

Q It is good to see you, deputy governor. In June this year, at the annual lecture of the Bank for International Settlements, the former Governor of the Bank of England —who I believe is your former boss—said in relation to stablecoin, the adoption of cryptocurrency and the concerns about systemic crises:

“In baseball, it’s three strikes and you’re out. In cricket, it’s only the equivalent of one. For systemic payment systems, one is too many. If that means, as it must, very rigorous oversight and rules for private stablecoins, what would then differentiate them from CBDCs?”

First, could you answer the former Governor’s question—what then does differentiate them from a central bank’s digital currency? Secondly, I am glad to hear you rightly say that the industry wants good regulation; is this regulation rigorous enough to enable that to happen?

Sir Jon Cunliffe: I do not normally contradict my ex-colleague and boss, Mark Carney, but I would say a number of things. On the landscape, let us be clear about what we are talking about: we are not just talking about new forms of payment systems; we are talking about new forms of money. Most of us do not realise it, but when we use our credit card, phone or cheques—if we use cheques—we are exchanging private money, which is our deposits at commercial banks. What these stablecoin proponents propose to do is create a new settlement asset—that is, a new form of money—to be used in transactions. I think that is why Mark said that when a payment system—the money going through it and the mechanism for transferring it—breaks down, then one of the basically essential services in the economy, like water or electricity, breaks down and transactions cannot happen. So you do not get one strike: if the payment system goes down, people cannot transact at scale. This is fundamental infrastructure, if I can put it that way.

The money that travels through these payment systems is also fundamental to society. It needs to be robust and safe, and history has lots of examples of what happens when people lose confidence in the safety of the money they are holding and transacting. That is why these things are crucially important. However, 95% of the money that we use in our economy is not public money from the Bank of England but private money from commercial banks, and I do not see, a priori, a reason why a new form of private money could not emerge using different technology in the way that stablecoins have proposed. What I will say, and the financial policy committee at the Bank has said this very clearly, is that the money that they use and the transaction machinery that they use must be as robust as the money we are using from commercial banks or the Bank of England. The public should not need to think, “Which money am I using?” It should all be one money of equivalent value.

I think there is a world in which you have a CBDC, stablecoins, commercial bank money and Bank of England cash, which we will produce as long as anybody wants it, and those things are interchangeable and people use them interchangeably—we use the moneys of different banks interchangeably now—but the regulatory system has to be strong and make it very clear that if what you are offering is a better service, an innovation, that is fine, but if it works because it operates to a lower standard, that is not fine.

[Martin Docherty-Hughes]

Q Let me say a little extra on that. I do not want you to conflict with your former colleague, but—

Sir Jon Cunliffe: No, no, it is fine. We are friends.

[Martin Docherty-Hughes]

He did say this, which I take in terms of stablecoin as well:

“Ultimately, crypto either has such extrinsic value without a use case, or has a use case as an NFT that perfects ownership (which is niche by definition in that it is non-fungible).”

His critique is that it becomes niche.

[The Chair]

Order. I am afraid that brings us to the end of the time allocated for the Committee to ask questions of this witness. On behalf of the Committee, I thank our witness.

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[Emma Hardy]

Q You mentioned before the letter and the number of people supporting the “have regard” to financial inclusion. I wonder whether it is worth sharing with colleagues who the people who support the “have regard” to financial inclusion are, and whether they elaborate on the reasons why they have supported that. Even though you are a wonderful spokesman, it is not just you supporting it, is it?

Martin Coppack: No. We have Martin Lewis on board, for example. That might surprise some people. We have Andy Briggs, chief executive of Phoenix Group. We have Lord Holmes of Richmond, from the House of Lords. We have the Legal & General Group chief executive. That is as well as other organisations that you might expect, such as Citizens Advice. There are about 70. This is not a niche area. People see it and see the need for it. It is not just Fair by Design.

[Martin Docherty-Hughes]

Q I think both of you will agree with what I am about to ask you. Would you agree that those most in favour of a cashless society are those with the most money in their bank?

Natalie Ceeney: Yes.

[Martin Docherty-Hughes]

Q If you look at other countries that are far more digitally enabled than the UK and Northern Ireland, notably Estonia—let me declare a non-pecuniary interest as the chair of that all-party parliamentary group—the vast majority of Estonians, who do have more or less a cashless society, believe that a cashless society or access to cash, should I say, needs to be supported with the infrastructure that you mentioned earlier, Natalie.

Natalie Ceeney: I think that is absolutely true. One thing I would say, perhaps to connect to the points that Martin has made, is, “Wouldn’t it be nice if everybody could participate in a digital society?” There is a risk that we talk about protecting cash for its own end. The reason why we are talking about protecting cash is that the most vulnerable need it, because it works better for them than digital.

We also, in parallel, need to work to a society where everyone is included in a digital economy. If you are dependent on cash, you shop locally; you cannot shop online. That means that you pay more for your goods and services. You cannot do direct debits. You probably have a prepayment meter. Actually, your costs of living, if you live on cash, are much higher. But the people who use cash are not stupid. They are not doing it because they have not worked that out; they are doing it because they have not got a choice, so I think that in parallel—this is not covered by this Bill, but it should be something that we collectively work on post the Bill—we need to work on how we include everyone in a digital society.

That is broader than financial services. In Britain, 4.5 million people do not have any kind of smartphone; 1.5 million people do not have any broadband or mobile connectivity; and 1.3 million people do not have a bank account. There are some bigger societal issues to tackle, but we have to really make sure that this is an inclusion debate.

[The Chair]

I think this will be the last question, asked by Stephen Hammond.

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[Andrew Griffith]

Q Do you think this is a good example of an area where it is important that the Government have an intervention power? We have seen some patterns of behaviour emerge very rapidly and cause significant public policy concern.

Mike Haley: Yes, I think we have seen in the past that regulators have not moved quick enough when there has been widespread harm. We might look at payment protection insurance, for example, where consumers brought plenty of reports into MPs’ and Government in-trays, and yet the regulator was rather slow in intervening in a market—a market that had been abused. I think that an intervention power could be very powerful.

[Martin Docherty-Hughes]

Q In terms of clauses 21 and 22 on digital settlement assets, how effective do you think the Bill will be in ensuring that we reduce fraud with digital settlement assets that use blockchain? I am not having a go at the technology, because that is a completely different discussion. How effectively will an open or closed blockchain, and the differences between the two, be regulated by this Bill?

Mike Haley: I think one of the problems of all legislation is how quickly it keeps up with changes in technology, and it being broad around principles. As I mentioned, with the authorisation of anyone who becomes a regulated entity dealing with digital settlement assets, it is important to have clear criteria for the onboarding—know your customer—and to know who the accounts are opened by. I find that already we are looking at money laundering through coin swap services, for which you do not need an account and may not be under this regulation. There are cross-chain bridges, where someone can move from one blockchain to another. I am not an expert on whether clauses 21 and 22 cover some of those services that have been created, which were probably not in the thinking when the Bill was starting to be drafted.

[Martin Docherty-Hughes]

Q My concern is that blockchain has been around for a long time. Fraud is not new—there is nothing new under the sun. Do you have a concern about the ability of the regulators to keep on top of this, as they do not have the knowledge that they should have, nor do they have the access to resources to develop it?

Mike Haley: There are a number of questions there. One is whether the legislation is broad enough to ensure that the regulator can act on some of those services. They need to be included in the perimeter. I do not think that some of these services—I talk about those coin swap services—are actually in the purview. There are cryptoassets and cryptocurrency exchanges, but some of these other services have been created, and from my reading of those provisions, I do not think they are covered.

[The Chair]

Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank our witness on behalf of the Committee.

Examination of Witness

Adam Jackson gave evidence

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[Tulip Siddiq]

Q You have touched on this very briefly. I would like you to expand a bit more on the comparison between our approach and the EU’s approach to crypto regulation in general. You will be aware of the EU’s regulation deal, which effectively brings together cryptoassets and activity into regulations, whereas we, at the moment, are limited to stablecoins. Are we at some sort of risk of falling behind because we have not had that sort of regulation? Does it compromise our competitiveness in the fintech sector because we have not had that sort of regulation deal?

The other thing I wanted to ask about is investment in the UK fintech industry, which was down to £9.6 billion in the first six months of this year, which is three times less than exactly the same period last year. Do you want to comment on the reason for that decline? What should we be doing as politicians to try and help with that?

Adam Jackson: Taking your first question, it is worth looking at the EU MiCA regulation and possibly the approach of a territory such as Singapore. It links a bit to the investment. We did some analysis of investment in just crypto alone, looking at that as a vertical within fintech, and again, the UK has always been the second location for crypto investment in the world, after the US, until the first half of this year, when we fell behind to Singapore. That might be a blip, but when you then look at regulatory mapping, you will see that Singapore possibly has the most forward regulatory system, particularly for stablecoin. The EU has a very comprehensive approach, but is has not come into force yet. Singapore has an established system, so I think that shows that if you get it right and have a proportionate regime, you attract the industry and the investment.

Is the EU approach right? There are strong arguments to say that it is possibly too comprehensive, and we come back to the notion that trying to find something that works for all 27 does not fit our circumstances. The UK is right to take a more iterative approach. We obviously have a common law approach as well, which means there are certain things we can do through case law. It is absolutely right that we are focusing on stablecoin and that is where some of the biggest volatility in the market was this year. The Bill addresses that, which will be really important in providing confidence for consumers and, critically, for investors in technology firms in that space.

The EU rule applies to not just stablecoin but cryptocurrencies more generally and exchanges, so should we also have a regulatory regime for other cryptoassets? I think the answer is yes. The question is how it fits within the Bill. The Government have said that they will introduce proposals for wider regulation of other cryptoassets. We expect something at some point, possibly soon.

That begs the question whether the Bill already enables the introduction of regulations. We probably need to ask Treasury counsel about the definition of a digital settlement asset. The Bill allows for the definition to be changed. Do the rules enable it to cover other cryptoassets? If it does, the powers are there to enable regulators to introduce systems subject to the proposals. If not, will we have to wait another 20 years before regulators are given the powers to regulate cryptoassets?

On cryptoassets, the important things that our members, including exchanges and cryptoasset firms, emphasise are an authorisations regime, a set of rules for initial coin offering—essentially, clear guidance on what information should be provided to consumers about individual assets—and custody. The Bill provides for applying rules on custody for stablecoin. If we do not have a parallel system, we will start to see some question marks over why those custody rules do not apply to cryptoassets as well.

On investment, there are different ways of looking at the figures from the first half of this year. Some investment, particularly VC, has really held up, but we know that globally we can expect a fall in investment, and we are just starting to see that trickle through. It is therefore a question of how the UK holds up against other countries. We might even see more mergers and acquisitions. At the moment, the pound makes the UK a nice place to come to buy fintech firms, so there may be a bit of difference there. It comes back to maintaining that competitiveness. Our members tell us that the most important thing is to get the Bill through. It provides important powers. If we can strengthen it in some of the areas that I mentioned to the Minister, that is also critical.

The other thing that I would flag is that there are two other pieces of legislation that are either before the House or slightly in limbo. They are also important for the competitiveness of fintech. One is the Data Protection and Digital Information Bill, introducing digital ID and open data, which will really transform the open banking we have into open finance. Australia already has that, so there is a risk of us falling behind. That Bill is also really important.

We have heard a lot about fraud. The provisions in the Online Safety Bill around making the places where frauds are advertised—the social media platforms and search engines—responsible for fraud, as well as requiring banks to reimburse, are critical. That is starting to be a factor in investment decisions. Whatever happens to that Bill, ensuring that those provisions are introduced as soon as possible is key.

[Martin Docherty-Hughes]

Q Mr Jackson, you said earlier that Singapore had forward regulation. Some of us on the Committee might see that as meaning that it is less robust than what the EU is proposing. I have heard Singapore and offshore tax havens used as some kind of comparator for UK regulation. Do you think that it is useful for us to use, say, Singapore—a one-party state, effectively—and offshore tax havens as a comparator for good regulation?

Adam Jackson: I was not suggesting that we should necessarily compare the exact regulatory regime—the economy is a very different size—but I would take the wider point that a territory that has been seen to introduce some regulatory rules, as opposed to having none, is seeing increased investment.

The other place to look is the US. I was in Washington last month talking to policymakers, and the area where there is most likely to be a bipartisan Bill next year is regulating stablecoin. In terms of our international competitiveness, others are moving, and the Bill enables the UK to keep up.

[The Chair]

I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank our witness on behalf of the Committee.

Examination of Witness

Martin Taylor gave evidence.

Financial Services and Markets Bill (Third sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Andrew Griffith]

That is not the position in the Bill, which does not contain that date. Whether or not the Government’s intention at the time was different, nothing in the Bill says that that will happen. The Government will not diverge for divergence’s sake, because we understand the need for continuity to give financial services companies the confidence that they seek.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

It is good to see you in the Chair, Dame Maria. Does that also apply to financial organisations based in Northern Ireland, Minister?

[Andrew Griffith]

If I may, I will come back to that point later.

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[Dame Angela Eagle]

Could the Minister spend a bit of time explaining what “materially similar” means?

[Martin Docherty-Hughes]

I asked the Minister earlier about Northern Ireland, and SNP and Labour Members would be interested to hear what he means by “proportionality” when it comes to services, EU-derived legislation and what differences there will be between the UK and Northern Ireland. He never mentions Northern Ireland—he keeps talking about the United Kingdom.

[Andrew Griffith]

To the question asked by the hon. Lady, my understanding is that the terms will have the common law usage. It would be inappropriate for me to try to insert my own definition.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7 ordered to stand part of the Bill.

Financial Services and Markets Bill (Fourth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

What do the Government mean by “innovation” in a piece of legislation? I wonder why such a term is used, because it is so broad. What does the Minister actually mean?

[Andrew Griffith]

If the hon. Gentleman will let me continue, I can offer some clarification. It is vital that the Government have the flexibility to develop a world-leading regime for cryptoassets in an agile way. The innovation itself comes from emerging new technologies or new uses for those technologies. The role of the Government and the Treasury in this respect will be to create regulatory frameworks that enable their safe deployment, which I hope all Members of the House agree with. Together, amendment 22 and new clause 14 will ensure that that happens.

[Andrew Griffith]

I am cautious of time; this issue would be apt for a debate in itself rather than being discussed as part of the Bill’s technical clauses. Aspects of Bitcoin are already within the perimeter of the regulatory regime. As I said at the beginning of my remarks, that is an emerging area. The hon. Member for Wallasey is quite right that there are trade-offs, and we want to protect consumers while not shutting the regulatory regime off from an emerging set of technologies.

[Martin Docherty-Hughes]

rose—

[Andrew Griffith]

I give way again, but I do not want to turn this into a debate about the underlying societal challenges of an emerging technology; I want us to confine ourselves as much as possible to the Bill.

[Martin Docherty-Hughes]

I am grateful to the Minister. I disagree that crypto is emerging; it has been around for quite a long time. In terms of parity of regulation and consumers, there are also the producers. It seems that there would be a halo effect: for example, larger companies would control stablecoin, but small or medium-sized companies that could produce stablecoin might be excluded. Will the Minister assure us of the Government’s intention to create equity in the stablecoin market?

[Andrew Griffith]

It is certainly not the Government’s intention to create anything other than opportunities for different participants to emerge and bring forward products in the sector. Those could include stablecoins, which are asset-backed cryptoassets. Over time, they could include central bank-issued currencies. The Government have indicated a desire to explore that, but have not yet confirmed that the Bank of England or the Treasury intend to issue.

Of course, we must ensure that products already out there being advertised to our consumers are appropriately regulated within the regulatory perimeter. We are not preferring or advantaging one or other part of that, but without the amendment and new clause we would not be able to bring forward the appropriate regulations, which the regulators will consult on with industry in due course. I hope that clarifies the Government’s thinking. Outwith the Committee, it will be appropriate in due course for the Government to update their set of policy objectives for this space. The subject that we are discussing today is somewhat narrower; it is just the remit of the Bill.

Amendment 22 clarifies that cryptoassets are within scope of the designated activities regime introduced by clause 8. We talked earlier about the designated activities regime—the DAR. By bringing cryptoassets within its perimeter for the first time, some of the societal outcomes and concerns that hon. Members have raised can be addressed. If we do not bring them within the perimeter, those concerns cannot be addressed.

New clause 14 clarifies that cryptoassets could be brought within the scope of the existing provisions of the Financial Services and Markets Act 2000 relating to the regulated activities order. The substance is that cryptoassets will be treated like other forms of financial asset: not preferred, but brought within the scope of regulation for the first time. That is the aim of the new clause. It will ensure that the Treasury is equipped to respond to developments in the crypto sector more quickly and deliver regulation in an agile, risk-based way that is consistent with our approach to the broader financial services sector.

The Treasury will consult on its approach with industry and stakeholders ahead of using the powers, to ensure that the framework reflects the unique features, benefits and risks posed by crypto activities. I think that is the assurance that hon. Members seek: that the Government will consult before seeking to use the powers. Any secondary legislation made to bring new cryptoasset activities into the regulatory perimeter would be subject to the affirmative procedure, so each House will have an opportunity to debate the legislation. That gives Parliament the appropriate oversight.

[Tulip Siddiq (Hampstead and Kilburn) (Lab)]

We welcome Government amendment 22 and Government new clause 14, which we recognise would extend financial protection to cryptoassets. It is a welcome and important move that will help to prevent high-risk cryptoassets from being falsely advertised to the public.

Does the Minister believe that the definition of cryptoassets is broad enough to capture financial promotions of as yet non-existent cryptoassets? I also wanted to ask him how the broad-ranging definition of “crypto” used in clause 8 takes account of the fact that the Bill only brings stablecoins into payment regulation.

[Martin Docherty-Hughes]

I draw the Minister and his Department’s attention to the work of Dr Robert Herian, who is one of the primary academics on regulation. I am mindful that he says it is the technology that underpins stablecoin and other related cryptoassets that we seek to regulate through the legislation. I welcome that—it is a step forward—but he has also said that the technology

“may offer an opportunity to recalibrate the powerplay between those who would engage in aggressive tax strategies and planning, and those charged with regulating them”.

Can the Minister advise Members whether he believes that this approach to stablecoin and future innovative technologies, which are already there, will enable a recalibration, so that finance is not utilised in some type of tax dodge? Could he reinforce that point? Every time we hear a discussion about stablecoin and cryptoassets, there is a certain element of finance that I do not think anyone here would really support.

[Andrew Griffith]

On the question posed by the hon. Member for Hampstead and Kilburn, I do believe that the definition is broad enough. If there are specific concerns or use cases that the hon. Member feels are not encompassed, I am happy to take that back offline or to write to her with advice. The intention is clearly to allow sufficient flexibility to broaden the perimeter.

I am not fully familiar with the works that the hon. Member for West Dunbartonshire talks about, but I am happy to become more familiar with them over time. It is clearly not part of the Government’s intention to legitimise what would not otherwise be legitimate or to create the opportunity for issuers to evade responsibility to society. That is not the Government’s aim and objective.

Amendment 22 agreed to.

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[Peter Grant]

I hope that the record of the sitting will clearly indicate that the Minister was given the chance to reply to the hon. Lady’s question—twice, in fact—but chose not to.

It is a fundamental principle of the devolved settlement that the Conservative party insists that it wants to protect that if a decision is made by a devolved Parliament under its devolved powers, nobody should have the right to overturn or amend that decision other than that Parliament. The Minister has said that he is not aware of any circumstances when he would want to use the power, so why not wait until the circumstance arises? Why not speak to the devolved Parliaments then—or, indeed, why have the Government not spoken to them already—to say that devolved legislation is causing problems, and to ask whether they can agree, cross-party and cross-nation, to change it, rather than pushing aside the devolved nations and the devolution settlement, and imposing rules on our people against the devolution settlement? Let us not forget that 75% of our people voted for the establishment of the Scottish Parliament.

I do not agree with everything Senedd Cymru does. It is not my party that is in government in Wales; it will never be my party that is in government in Northern Ireland. I will not agree with everything they do, but I utterly respect the rights of those Parliaments to legislate in the best interests of their people. If the Minister is saying that he does not think that he will be able to trust the devolved Parliaments to make a sensible decision if and when that becomes necessary, we have a big problem.

[Martin Docherty-Hughes]

My hon. Friend talks about not trusting the Scottish, Welsh or Northern Ireland Government. Any legislation brought forward in those places receives the attention of senior legal advice, whether that be from the Lord Advocate or from others in the devolved Administrations. The amendment defends the legitimacy and independence of the legal advice given by senior legal officers to devolved Administrations.

[Peter Grant]

My hon. Friend makes a valid point. It is sometimes forgotten that the devolved Parliaments have a number of checks in place to prevent them from attempting to legislate on things that are clearly beyond their powers, and there is a clear example of that happening at the moment, but there is no statutory or constitutional check on this place’s ability to push aside the devolution settlement to legislate on matters that are clearly devolved. That is simply not acceptable. Remember, we were talking about what the Government still call the most powerful devolved Parliament in the world. How can it be anywhere near being that if the Parliament that devolved powers to it can grab those powers back at the drop of a hat or the stroke of a pen? I will not withdraw the amendment. Every time I see such a power grab in legislation, I will speak against it, stand against it, and vote against it.

Question put, That the amendment be made.

--- Later in debate ---

[Andrew Griffith]

I will do my very best to respond to that question. It is a point of detail. Today we are putting frameworks in place to try to legislate for as many outcomes as possible. By definition, that means that there is not a definitive list, but I will write to the hon. Lady and share the letter with the Committee.

To that point, given the breadth and variety of activities that may be designated under the DAR, a tailored supervision and enforcement framework will be needed for each one. We all recognise that we might want to regulate insurance in a different way from investment banking.

Proposed new section 71Q of FSMA therefore gives the Treasury the power to confer appropriate powers on the FCA for the purpose of supervising and enforcing regulations and rules relating to designated activities. Some activities that the Treasury may designate already have criminal offences attached to them under FSMA—for example, part 6 of FSMA contains two offences related to the offering of securities. Proposed new section 71Q will allow HM Treasury to maintain an existing criminal offence of offering securities and to modify it, including by adjusting the scope of the offence to reflect the scope of the new designated activity. I imagine from comments made that that would get broad support.

The Government will be able to apply and modify only criminal offences that already exist in FSMA. The provisions will not enable the Treasury to create a wholly new criminal offence relating to this activity. Schedule 3 sets out proposed new schedule 6B to FSMA. The schedule is inserted by clause 8 and lists examples of the types of activity that the Treasury may designate using the power introduced by clause 8. That may be the source of my response to the hon. Member for Kingston upon Hull West and Hessle. At this stage, schedule 3 is indicative only. The Government intend that a number of market activities currently regulated under retained EU law will be designated for inclusion in DAR. It is anticipated that a wider range of activities will be designated in future to ensure that the regime supports an agile and proportionate approach in the UK.

[Martin Docherty-Hughes]

Will the Minister help with a quick clarification on proposed new section 71Q? It refers to “conferring powers of entry”. Would that be on His Majesty’s Revenue and Customs? It has UK-wide powers of entry. Does that refer solely and wholly to HMRC, or does it refer to others who might require entry under the legislation?

[Andrew Griffith]

I will write to the hon. Gentleman to confirm that. It is important that our model of financial services regulation be responsive to emerging opportunities and challenges, and that includes those that can be regulated in future but are as yet unknown. Hon. Members can understand the thrust of what we are trying to do through clause 8 and schedule 3.

--- Later in debate ---

[Shaun Bailey]

The provisions in clauses 13 to 17 are incredibly welcome, because we are dealing with a financial services landscape that is constantly innovating and changing. I should declare that prior to becoming a Member of Parliament, I worked for the legal team at a major big seven bank and saw these developments as part of my role there. The provisions are very important because they will ensure that, as the fintech sector continues to develop and the regulatory framework continues to advance and change, they can do so within the perimeters of the sandbox arrangement introduced by the Government.

I particularly welcome the clause 16 provisions on consulting regulators, and the fact that there is going to be a discourse with them. We cannot cut regulators out of the conversation. The clauses do not seek to do that, but the hon. Member for Hampstead and Kilburn was right to raise queries. We need a bit more clarity on what the consultation will look like. I fully appreciate that it is not always possible to give instant clarity when introducing primary legislation, but it will clearly be incumbent on the Treasury to ensure that, as the process progresses, His Majesty’s Government are as transparent as possible about what the consultation will look like.

We should remind ourselves that the practical application of the clauses will change and develop as the landscape itself develops, because that is the subject matter that we are dealing with. On clause 16, with respect to the development and work with regulators, I urge my hon. Friend the Minister not to forget the important role that lawtech plays in the regulation and monitoring of a lot of the instruments that will be part of the sandbox regime. It is often not talked about, but fintech and lawtech work hand in hand, side by side, particularly in this financial services sector.

I support the clauses; they are the right thing to do. As hon. Members on both sides of the Committee have articulated, they allow not only the financial services sector to innovate and develop, but the regulation to be developed in tandem with them. I would, however, welcome clarity from my hon. Friend the Minister on the what the practical applications will look like, particularly as we build that framework.

[Martin Docherty-Hughes]

I do not want to be the fly in the ointment, but I would like some assurances from the Minister about the FMI sandboxes. The Clifford Chance briefing notes that

“the FSMA Bill permits HM Treasury to allow broad participation in FMI sandboxes which in practice could include FMI providers, and participants in these systems as well as, conceivably, unregulated service providers such as technology companies and any other person that HM Treasury specifies.”

I am looking for an assurance from the Minister and his civil service team on the notion of unregulated service providers having access to the FMI sandbox. It seems that the EU pilot regime is far more limited in its multilateral trading facilities and securities settlement systems, and that it makes no mention of recognised investment exchanges or any other persons. It is not, therefore, making itself a hostage to fortune with its pilot system. Could the Minister and his team provide reassurance on the broad scope of innovation that they seem to be going for?

[Dame Angela Eagle]

I find myself rising to try to elaborate on the important points that have been made. I do not think that anyone would argue against the need to think very carefully about how to pilot—or sandbox, to use the jargon—the very rapid development and potential of what is happening. It is also important in the context of financial market infrastructure.

Certain infrastructures in our financial system are really old. One need only consider how long it took to get the bank clearing process vaguely up to date to understand the importance of modernising infrastructures. I do not think that anyone would object to an attempt to come up with a structure that tests activities, which is what these clauses do.

The Minister, however, has not provided any detail on issues such as risk mitigation; whether parallel sandboxes involving similar infrastructures will be developed, almost in competition with each other; whether this will happen in just one area; or how the powers will be used to test whether potential infrastructures might be worth using. Could he add a little more colour to how he sees those things happening? How big will the sandboxes be? How long will they be allowed to continue? The Minister is grinning because this is the kind of detail that an enabling Bill does not contain, but it might be quite important.

Testing regimes in other areas are sometimes very limited. I would be worried if we had an unlimited testing system running for a long period, allowing unregulated organisations in, perhaps running in parallel with each other. If that is what the Minister is suggesting, I would be worried. If he is suggesting something much more minor and limited, to see whether the technology works and whether people can interact with it to redesign the way in which websites work, I would be less worried.

[Martin Docherty-Hughes]

I am delighted that the hon. Lady has allowed me to intervene. The technology is not new, and that is what concerns me in relation to a lot of the debate on the Bill. There is nothing new under the sun about a lot of the technology, which underpins sandboxes, cryptocurrency and so on, that we are talking about. It just seems that a lot of the terminology takes over the substance of the issue that we are discussing.

[Dame Angela Eagle]

That is true. Blockchain has certainly been around for quite a while. Its use has implications for transparency and for the levels of employment that there might be in the old, more bureaucratic banks.

What would be the use of artificial intelligence in trying to decide how automated these things could become? Would there be worries about over-automation? How would that be looked at in terms of regulation? How open are we going to be about the way in which AI is applied and how it might evolve in ways that might embed discrimination such that we get a system where certain people may be discriminated against and excluded? There are a range of issues that need to be tested in these kinds of environments. It is hard to do that under a negative resolution procedure. I take the Minister’s point, however, about affirmative resolutions. If one of these things worked during the trial period, was issued and became permanent, it is important, as the Minister has said, that any changes are subject to affirmative regulation.

There are a whole load of black boxes in the Bill that we might need to debate further. Could the Minister give us more colour on whether there will be parallel sandboxes, on transparency on what will be used and how it will be compiled, and on how large the sandboxes will be in terms of money on the exchanges or turnover, or however he wants to put it. Then we could consider whether risk is being mitigated and how we can develop a system using trundling and analogue legislation, if I may put it that way, in an environment where innovation is digital and rapid.

I understand what the Minister is trying to do, but this Parliament must still be aware that we need to be on top of the detail of this Bill, rather than just passing shells of enabling legislation that do not give us enough of a handle on what is intended.

Financial Services and Markets Bill (Seventh sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Andrew Griffith]

In substance, the Payment Systems Regulator, in the same way as the FCA, the Bank and the PRA, will have the target as one of its principles. It will be for the PSR to decide how it reports against that. These are ultimately decisions for the regulators themselves to put into practice. To the extent that I have more information at this stage, I will write to the hon. Lady with any clarity I can provide.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 47

Cash access services

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I beg to move amendment 40, in clause 47, page 68, line 9, after “of” insert “free of charge”.

This amendment makes reference to the provision of free of charge cash access services in Schedule 8.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Amendment 41, in schedule 8, page 150, line 27, after “service”)” insert

“free of charge or on the payment of a fee”.

This amendment changes the definition of cash deposit services to include both those which are free of charge and which require the payment of a fee.

Amendment 42, in schedule 8, page 150, line 29, after “service”)” insert

“free of charge or on the payment of a fee”.

This amendment changes the definition of cash withdrawal services to include both those which are free of charge and which require the payment of a fee.

Amendment 16, in schedule 8, page 151, line 36, after “concerning” insert

“both free of charge and paid access”.

Amendment 17, in schedule 8, page 154, line 12, after “appropriate” insert

“and must include the provision of free of charge cash access services”.

Amendment 18, in schedule 8, page 154, line 18, leave out from “is” to the end of line 22 and insert “—

(a) an absence of free of charge cash access services in a locality in a part of the United Kingdom, or

(b) a circumstance which limits the ability of persons in any locality in a part of the United Kingdom to—

(i) withdraw cash from a relevant current account, or

(ii) place cash on a relevant current account.”

New clause 10—Access to cash: Guaranteed minimum provision—

“(1) The Treasury must, by regulations, make provision to guarantee a minimum level of access to free of charge cash access services for consumers across the United Kingdom.

(2) The minimum level of access referred to in subsection (1) must be included in the regulations.

(3) Regulations under this section shall be made by statutory instrument, and may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”

New clause 11—Duty to collect data on cash acceptance—

“(1) The FCA must monitor, collect and publish data in relation to levels of cash acceptance amongst retailers and service providers within the United Kingdom.

(2) The FCA must publish a report, as soon as practicable after the end of—

(a) the period of 12 months beginning with the day on which this Act is passed, and

(b) every subsequent 12-month period,

on levels of cash acceptance amongst retailers and service providers within the United Kingdom.

(3) The FCA can, by written notice, require a retailer or service provider to provide to the FCA information that it may reasonably require for the purposes of exercising its duties under subsections (1) and (2).”

New clause 12—Access to cash: Guaranteed minimum provision for small businesses—

“(1) The Treasury must, by regulations, make provision to guarantee a minimum level of access to free of charge cash access services for small businesses across the United Kingdom.

(2) The minimum level of access referred to in subsection (1) must be included in the regulations.

(3) Regulations under this section shall be made by statutory instrument, and may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”

[Martin Docherty-Hughes]

It is good to see you in the Chair, Mr Sharma, and other hon. Members here today. It is a pity that my hon. Friend the Member for Glenrothes cannot be with us, as he has played a large part in constructing these amendments. I know that other hon. Members will want to participate in a debate on free-of-charge access to cash. I look forward to hearing what they have to say. At the moment, depending on what the Minister has to say, it is my intention to press the amendment to a vote, but I will listen to the Minister’s comments.

It is important to give some examples about the reduction in free access to cash. People sometimes wonder where the constituency of West Dunbartonshire is. We are bound by Glasgow to our east, where we become an urban element of the west of Scotland. We move further west through Clydebank, into Dumbarton and through the Vale of Leven, becoming suburban and then semi-rural, to the base of Loch Lomond itself. The community has a diverse demographic, with a range of deprivation that also impacts on people’s need to access physical cash.

In the last four years in West Dunbartonshire—I am sure this experience is mirrored not only in Scotland but the rest of these islands—we have seen a drop of 27% in access to ATMs, or automated teller machines. That is three ATMs, coupled with closures of local bank branches. We are a population of more than 90,000, but we seem to have only three or four bank branches left, which is extraordinary. My constituents face being forced to travel across a range of areas, including sometimes into the city of Glasgow, to access cash. My hon. Friend the Member for Glenrothes and I think it is vital to protect our constituents and the constituents of all other Members, too, in making sure that they have access to free-of-charge cash, notably for the most disadvantaged groups and the elderly.

Let me declare a non-pecuniary interest as the chair of the all-party parliamentary group on Estonia. Estonia is usually used as an example of what a digital state should be. After the fall of the Soviet Union it picked itself up and ran with a full digital agenda. One of its biggest learnings was that no one should be left behind in the race to digitalisation, critically in relation to access to cash. For the Estonian Government, and the Estonian Parliament, making sure that any financial system is not only fit for purpose in the digital age but that it takes everyone with it, including access to services and free access to cash, was their big learning curve. They believed that they failed in that process to begin with.

I hope that, when reflecting on the amendment, the Government realise that there is a huge opportunity to maintain access to cash for a range of reasons. We can talk about our constituents, and predominantly those who are elderly or from disadvantaged groups who use cash on a more regular basis. We can also talk about small and medium-sized businesses, a lot of which have moved to digital transactions. When Members go to a small shop in their own constituencies, they will notice that a lot of transactions have moved to digital due to the pandemic, but shops still have a substantial amount of cash that comes through their doors. One of the big problems that shops also have—not just free access to cash for those consuming their products—is depositing their takings at the end of the day. They are finding that very difficult as well. Businesses rely on consumers who use cash, especially in disadvantaged communities.

I am mindful of what the NM Group said in its submission:

“Cash remains an important form of payment for millions across the UK, particularly during times of economic hardship.”

The narrative of the cost of living crisis is used across the House, so there is clearly an agreement that people are facing economic hardship and that access to cash during that time is critical. That is why we think amendment 40 is important, as are the other amendments in this group.

We should also note that the payment method with the lowest economic friction, providing businesses and members of the public with a crucially important alternative, is cash. It is an important way for people to manage their finances, especially those in a disadvantaged group or those who are elderly who do not use digital money. I also note that the figures published by LINK, UK Finance and the Post Office show that around £10 billion in cash is withdrawn each month. That is £120 billion per annum in physical cash from ATMs, or from bank counters and post offices. The volume of withdrawals from the LINK system alone equates to about two withdrawals per month for each adult member of the UK population.

To bring my thoughts to a conclusion, we need to also be mindful of some of the infrastructure. UK consumers can access cash from over 55,000 ATMs, 11,500 post offices and certain bank branches—if they are not closing down in our local communities. The number of post offices is actually shrinking; there are no longer two or three post offices in a community—there is maybe only one. Over 90% of cash withdrawals take place at actual ATMs. The critical issue around free cash deposit and withdrawal services within the amendment is extremely important.

The access to cash review in 2019 noted that we cannot sleepwalk into a cashless society. That reflects back to what I was saying about the Estonian learning about digital infrastructure: it can leave a substantial number of people behind. That was the reality for Estonia. Cash continues to be important. Contactless payments and online banking can make it easy for some people to live entirely cash-free. However, given the volumes of cash in society, its usage remains extremely high. That reminds us that we do not live in a cashless society. The LINK network still handles around 1.6 billion transactions a month—that was the average in 2021. On average, adults still withdrew over £1,500 a year. During a global pandemic, cash was still being physically used. It is important to listen to the Minister and the Government’s view on it, although it is my intention to press the amendment to a vote. I look forward to hearing what others say.

[Shaun Bailey (West Bromwich West) (Con)]

It is a pleasure to see you in the Chair, Mr Sharma—

--- Later in debate ---

[The Chair]

Before I call Martin Docherty-Hughes, I inform the Committee that I will take one vote on amendment 40. There will be no other vote on this group.

[Martin Docherty-Hughes]

Thank you, Mr Sharma.

It was interesting to hear what the Minister and Members on the Government Back Benches had to say—I congratulate the hon. Member for Mitcham and Morden on the litany of exasperation from the Back Benches, which I thought was well played. I was glad to hear the hon. Member for West Bromwich West agree with the vast majority of what I had to say, and I go back to what the Minister said about the statutory protection of cash. If that is the truth, 27% of free ATMs in West Dunbartonshire would not have closed in the past four years.

I am usually minded to push my amendments to a vote. I seek some reassurance from my colleagues on the official Opposition Benches that if I do not push my amendment to a Division, all the amendments in the name of the hon. Member for Mitcham and Morden will be moved. The Clerk may want to give some advice to the Chair on that issue, because I know that if I withdraw my amendment, I can bring it back on Report. I look for some clarification on that issue first.

[The Chair]

The advice is that if you withdraw your amendment, I will take one of the three amendments from the hon. Member for Mitcham and Morden.

[The Chair]

You choose one of those three, and I will take it if the hon. Gentleman decides not to push his amendment to a Division.

[Martin Docherty-Hughes]

I think I am getting my assurance that one of those amendments will be pressed to a vote by the official Opposition, so in order to make sure that we have a coherent and agreed process, I will not push my amendment to a Division. However, I make it clear to the Government that I have not heard anything today that means that free access to cash will be safeguarded for my constituents, and I will probably bring my amendment back on Report. I look forward to voting with my colleagues in the official Opposition. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 47 ordered to stand part of the Bill.

Schedule 8

Cash access services

Amendment proposed: 16, in schedule 8, page 151, line 36, after “concerning” insert

“both free of charge and paid access”.—(Siobhain McDonagh.)

Question put, That the amendment be made.

Financial Services and Markets Bill (Eighth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Andrew Griffith]

I will be brief. We all join hands in taking any action that we can against fraudsters. It is a terrible crime, and one that is on the rise, and the Government will do everything in our power to take action.

I say to the hon. Member for Hampstead and Kilburn that I will take no lessons from the Opposition on fraud. The impediment to cracking down on this issue lies solely within EU law. It is this Government that have withdrawn from the European Union—a policy that her party now belatedly supports, but did not for many years. It is only by bringing forward this legislation and withdrawing from the European Union that we are able to put in place clause 62.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

rose—

[Andrew Griffith]

I will happily give way to my colleague, who I think, unlike the Opposition, still wants to be part of the European Union.

[Martin Docherty-Hughes]

Definitely. Is the Minister therefore saying that the European Union was promoting fraud within the financial framework of the United Kingdom of Great Britain and Northern Ireland? Is that what he just said?

[Andrew Griffith]

I wish the hon. Gentleman was attentive to what I was saying. That was not what I said; I did not use the word “promote” in any way. I said it was an impediment. Clause 62 addresses the fact that under retained EU law, it is not possible to take the action that we wish to take on push payment fraud. That is a fact, and that is why we came forward with the Bill. There are many other things the Government are doing outwith the Bill to tackle fraud, and I will happily sit down and talk with anybody—and meet with any party—who has practical suggestions to tackle fraud.

--- Later in debate ---

[Tulip Siddiq]

Clause 63 contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wide range of products. However, I do not think the Bill does much to address the outdated regulatory regime facing credit unions as a whole. We will discuss Labour’s proposals to address that, and the barriers facing the wider co-operative and mutual financial services sector, when we debate new clauses 7 and 8.

However, for now, I will push the Minister on some of the areas where the Building Societies Association—and others—has called for bolder action in its written submission to the Committee. First, why do clause 63 and schedule 12 not relax the same-household requirements for family members? Secondly, why does the Bill fail to restrict access to the register of members, in line with best practice for the protection of members’ personal data?

[Martin Docherty-Hughes]

I agree with the official Opposition on clause 63. I must say, we have talked about 1979, but I would mention 1977, when the Dalmuir Credit Union was opened, and I was number 501 with a membership card, around the age of six, on the church hall stage.

I am very aware of the good works that credit unions such as Dalmuir, Dumbarton and Vale of Leven do in my constituency, and, I am sure, across other Members’ constituencies, but I share the concerns expressed by the official Opposition about the existing infrastructure. I hope that the Minister can say something to alleviate concerns about that existing framework—not only for credit unions but for other local banks, which have been diminished over the past couple of years—and about how the legislation helps to grow this sector of mutual financial support in local communities. We know our banks and post offices are closing, but the credit unions, especially, can be a good cause on which we can all agree.

[Andrew Griffith]

I thank the hon. Members for West Dunbartonshire and for Hampstead and Kilburn for raising those points. I look forward to hearing the debates about the new clauses that have been tabled.

The Government are on the side of credit unions. We would like to see the mutual and co-operative movement flourish. We need more diversity, affordable options and access to credit. The Government introduced this clause with the absolute intention of helping to expand the range and create more economic opportunities for those bodies. If we have, in some way, fallen short of what could be achieved, I look forward to hearing more about that. I cannot comment on the specific point made by the hon. Member for Hampstead and Kilburn about sharing households and data, so perhaps she would allow me the courtesy of writing to her afterwards if I can find out anything about those points.

This Bill is part of a wider set of measures. On Friday, we discussed on the Floor of the House a Bill to help to prevent the demutualisation that has reduced the number of mutuals in recent years. I was pleased to give Government support to that Bill. There is an ongoing conversation with the Law Commission on the options to review the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992. There is a very good case for looking at modernising the legislation in this sector.

Question put and agreed to.

Clause 63 accordingly ordered to stand part of the Bill.

Schedule 14 agreed to.

Clause 64

Reinsurance for acts of terrorism

Financial Services and Markets Bill (Ninth sitting)

Martin Docherty-Hughes Excerpts

Committee stage
Thursday 3rd November 2022 Public Bill Committees

We know that we have hit financially difficult times for young people. They need to be fully aware of the situation. The idea that people have started to use buy now, pay later to pay food bills is absolutely chilling. This cannot be an unregulated a form of credit, just because it is new or because it does not really impact on older people or people likely to be Members of this House.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

I rise to support the new clause moved by the hon. Member for Kingston upon Hull West and Hessle.

Some things do not change. The technology might, but the need for continuation of consumer protection does not. I heard Members talk about parents using buy now, pay later. I remember buying a sideboard with my sister in the ’80s using the old-fashioned financial system of paying money every week—that took a long time to pay back. That reality does not change, and this form of credit is now happening with single items, whether they be trousers or shoes, or make-up, which raises a whole range of diverse issues. We cannot lose sight of the fact that most people who might utilise the service in my constituency might not know that they do not have the appropriate consumer protections. The SNP will support the new clause if it is pushed to a vote.

--- Later in debate ---

[Martin Docherty-Hughes]

The Minister talks about how he wants the impact of closures to be understood in the decision-making process. Understood by whom? The banks are telling us why they want to close their branches: they are saving money. The FCA is saying, “The banks are closing their branches to save money.” Our constituents know what it means to lose a bank branch. There is nothing new here. We understand why banks are closing their branches: they want to save cash. They do not want to continue a local service for our constituents, so what does the Minister mean by “understood”? Understood by whom—the banks, the FCA or our constituents?

[Andrew Griffith]

Ultimately, the banks are downstream of the widespread issue that is the change in consumer behaviour. We have heard both in evidence and in comments made in Committee that 86% of transactions are now digital. The use case of going to a bank branch has evolved rapidly in my lifetime and the lifetime of all Committee members. That is the ultimate macro issue that we are dealing with. Is that issue understood? I think it is.

Solutions could be brought to the table, in terms of both a greater toolkit for the FCA and greater prominence and scrutiny of the FCA as it uses the existing toolkit and the new powers in the Bill. There are also industry-led solutions, which having perhaps started slowly are increasing at greater pace. Proportionality is about giving those developing trends time to mature to see what models can be developed, while accepting the underlying need for action.

I therefore ask the hon. Member for Hampstead and Kilburn to withdraw the motion.

--- Later in debate ---

I am interested to hear what the Minister has to say about this. I certainly hope that he will read the Select Committee’s report and that, as he spends more time in his role, he will consider how his duties impinge on the systemic structure of this problem, as well as what he and his anti-fraud counterparts in other Departments can do. If the Minister reads their oral evidence to the Select Committee, he will find that they were very frustrated by how ineffective what they had managed to do had proven to be. We hope that this Minister will get to the stage of bearing down on this problem and turning the tide of fraud that is engulfing our entire system and having a detrimental effect on our constituents.

[Martin Docherty-Hughes]

If the hon. Member for Hampstead and Kilburn presses the new clause to a vote, I will certainly support it. I declare an interest as the chair of the all-party parliamentary group on blockchain.

To build on what the hon. Member for Wallasey said, in subsections (2)(f) and (3)(d) and (e), we have a huge opportunity to help the Government by ensuring that there is a strategic overview of how fraud impacts on the technology sector. The problem is not necessarily the technology but the people utilising it. Distributed ledger-type technologies, for example, are used to access investments and assets, but those who are supposedly selling assets are taking advantage of technology that a lot of younger people use.

Critically, I hope that the Government hear the concern that there might be no strategic overview of how such technology can be manipulated. The tech is fine, but we must consider that manipulation—particularly of closed distributed ledger technologies and closed blockchains—and how it can block out the people who actually buy into those systems. I hope that the Government hear what has been said on the new clause.

[Emma Hardy]

I support the new clause. I refer the Minister to the evidence given by Mike Haley, the chief executive of CIFAS. In respect of fraud, he said:

“Absolutely, there should be a national strategy, and prevention should be at its core.”

He said that the Home Office was looking at

“publishing a national strategy; it has been much delayed and it is very much anticipated.”

One reason for including a national strategy in the Bill is the need for that strategy to be introduced as quickly as possible.

Mike Haley also said that he would like that strategy to be

“more ambitious, and to cover the public and private sectors, as well as law enforcement.”

He made the very good point that

“fraudsters do not decide one day, ‘We only go after bounce back loans because that is a public sector fraud.’ They will go after a loan from the NatWest bank, or a mortgage.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 68, Q130.]

He highlighted the inability to share information and said that some people might say that GDPR was preventing them from sharing information. He went on to say:

“It is a crime that is at scale and at speed in the online environment. To be able to share the mobile numbers that are being used, the devices and the IP addresses at speed across the whole of the environment—payment providers, fintechs and telecos—would be enormously powerful. This is a volume crime, and we need to have prevention at the core of any national strategy. That would have a massive positive impact. ”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 38, Q129.]

Our witnesses called for a national strategy that looks at crime seriously and that is more ambitious than that suggested by the Home Office and broader in scope. Although many of the frauds relate to small amounts, they are numerous and they cause people significant harm. When the Minister responds, I would like him to recall that oral evidence and the reason why our new clause calls for a national strategy.