Financial Services Bill (Eleventh sitting)

Pat McFadden Excerpts

Committee stage & Committee Debate: 11th sitting: House of Commons
Thursday 3rd December 2020 Public Bill Committees

[The Chair]

Before we begin, I have a few reminders. Please switch electronic devices to silent, tea and coffee are not allowed in sittings, and I thank everybody for your respect of social distancing. The Hansard reporters will be grateful if Members could email any electronic copies of their speaking notes to [e-mail]. If Members wish to press any of the new clauses that have already been debated to a Division, some prior indication would be helpful, although not compulsory.

Today, we continue line-by-line consideration of the Bill. New clause 1 has already been debated. Does Pat McFadden wish to press it to a Division?

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

No.

New Clause 2

European Union regulatory equivalence for UK-based financial services businesses

‘(1) The Treasury must prepare and publish a report on progress towards regulatory equivalence recognition for UK-based financial services firms operating within the European Union.

(2) This report should include—

(a) the status of negotiations towards the recognition of regulatory equivalence for UK financial services firms operating within the European Union;

(b) a statement on areas in where equivalence recognition has been granted to UK based businesses on the same basis as which the UK has granted equivalence recognition to EU based businesses; and

(c) a statement on where such equivalence recognition has not been granted.”—(Mr McFadden.)

This new clause would require a report to be published on progress towards, or completion of, the equivalence recognition for UK firms which the Government hopes to see following the Chancellor’s statement on EU-based firms operating in the UK.

Brought up, and read the First time.

[Mr McFadden]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss the following:

New clause 28—Pre-commencement impact assessment of leaving the EU Customs Union—

‘(1) No Minister of the Crown or public authority may appoint a day for the commencement of any provision of this Act until a Minister of the Crown has laid before the House of Commons an impact assessment of—

(a) disapplying EU rules;

(b) applying rules different from those of the EU as a consequence of any provision of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment,

(c) productivity,

(d) inflation,

(e) financial stability, and

(f) financial liquidity.

(3) A review under this section must consider the effects in the current and each of the subsequent ten financial years.

(4) The review must also estimate the effects on the changes in the event of each of the following—

(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,

(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or

(c) the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.

(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.

(6) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and

“regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require the Government to produce an impact assessment before disapplying EU rules or applying those different to those of the EU; and comparing such with various scenarios of UK-EU relations.

New clause 36—Regulatory divergence from the EU in financial services: annual review—

‘(1) The Treasury must prepare, publish and lay before Parliament an annual review of the impact of regulatory divergence in financial services from the European Union.

(2) Each annual review must consider the estimated impact of regulatory divergence in financial services in the current financial year, and for the ten subsequent financial years, on the following matters—

(a) business investment,

(b) employment,

(c) productivity,

(d) inflation,

(e) financial stability, and

(f) financial liquidity,

in each English region, and in Scotland, Wales and Northern Ireland.

(3) Each report must compare the analysis in subsection (2) to an estimate based on the following hypothetical scenarios—

(a) that the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement;

(b) that the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union;

(c) that the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union; and

(d) that the UK signs a comprehensive free trade agreement with the United States.

(4) The first annual report shall be published no later than 1 July 2021.”

This new clause requires a review of the impact of regulatory divergence from the European Union in financial services, which should make a comparison with various hypothetical trade deal scenarios.

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[Mr McFadden]

Thank you for your chairmanship, Mr Davies. I rise to speak to new clause 2, in my name and the names of my hon. Friends. We discussed equivalence when we were debating clause 24 or 25, so it might relieve the Minister and the Committee to know that I will not repeat everything I said about how we got to this position, but let us look at what the current situation is.

First, we have withdrawn from the EU, and in so doing we have withdrawn from any joint decision-making process about mutual access to financial services. Secondly, a few weeks ago the Chancellor announced a unilateral move on the UK’s part to grant equivalence recognition to EU member states and their firms. Thirdly, there is a legislative mechanism to do that in the Bill. Fourthly, we now await decisions on equivalence from the EU. Finally, in terms of the regulatory picture, we have spent a lot of legislative time in this House—probably no one more than the Minister in the past two years or so—legislating to onshore various EU directives. That is where we are.

The aim of onshoring that vast body of legislation was to have a parallel position, or as near to one as we could reach, on day one of the end of the transition period. At the same time, though, we have given our regulators powers to diverge in various ways from the terms of these directives in future. We have discussed that quite a few times in Committee, and the Minister said that the Government are not interested in diverging for the sake of divergence, but of course there are many in the Government, and in his party, for whom divergence is the whole point of the exercise, because it is all about sovereignty. Although we may be almost totally in line on day one—new year’s day—what about day 100 or day 1,000?

Nothing in new clause 2 alters the power to diverge. If the package of onshoring and granting new powers to the regulators that the Minister is taking through is there, nothing in the new clause alters that, but it asks for a report on where we have reached in that process. We know that a positive outcome of this process could have a very significant bearing on the UK financial services industry. It would mean better access for our firms than without that process. It certainly would not give them what they have at the moment, but that is water under the bridge—we debated that earlier in Committee.

The converse is also true, of course: if we do not get equivalence recognition, it would have implications for jobs, tax revenue and how the UK is viewed as a home for inward investment in the financial services industries. All that the new clause does is to ask for a report on where we have got to in the process or, alternatively, a statement on who has refused to grant equivalence of recognition.

I hope the Economic Secretary does not mind if I point out that I cannot be the only one who is struck by the clamour, particularly on the Government Benches, for economic evidence to justify covid-protective measures. Everybody wants the exact detail of how that will affect their local economies. If that is the case, it is only right that the Government report on the economic consequences of the other major process that we are going through. That is the intention behind the new clause.

The sector is hugely important for the United Kingdom, as has been mentioned many times during our debates over the last couple of weeks. All that the new clause does is to ask for a report on where we are on market access. I very much hope that we have a positive outcome on that. Some of it may be about good will, and it might depend on what is agreed in the next week or two—we do not know. It is certainly in the interests of the sector to have a positive outcome. The least we can ask is that the Government report to the House on that.

Finally, if the outcome is positive, the Government will probably want to report back anyway. If the outcome is not positive, Parliament has a right to hear about that, too.

[Stephen Flynn (Aberdeen South) (SNP)]

Just to be clear, Mr Davies, do you wish me to speak to new clause 2 or to new clauses 28 and 36?

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The Government are fully committed to ensuring accountability and scrutiny around new rules for the UK’s financial sector. That will include following the usual requirements for impact assessments related to both primary and secondary legislation, giving Members of Parliament the opportunity to consider and scrutinise Treasury decisions as part of the legislative process. Where the responsibility falls to the financial services regulators in the form of regulator rules, it is accompanied by robust accountability and scrutiny mechanisms, as I have set out to the Committee in previous sittings. The Government will ensure that Parliament is kept informed with the analysis of regulatory changes at the right times and in a way that does not impede the UK’s ability to strike the best deals with international partners. I therefore ask for the new clause to be withdrawn.

[Mr McFadden]

I want to respond to a couple of things that the Minister said. As I said when I moved the new clause, nothing in it stops divergence. There is no attempt to make sure that we are in lockstep with EU regulations for ever and a day. The new clause is completely silent on that.

Nor does the new clause pretend that the equivalence decisions that we seek can be within the gift of the Government. In fact, from the point of view of some of us, that is the problem. We would have a say over that at present, but we will no longer have a say in future. That is precisely why we are discussing this issue.

All that the new clause does is ask for a report on the outcome. What is the outcome for our financial services? It is like we are back on day one of our proceedings, when we talked about the different reasons for turning amendments down. The Minister has said that the Government will report regularly to Parliament, in which case the new clause would be entirely harmless. That is why we will press it to a vote.

Question put, That the clause be read a Second time.

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Brought up, and read the First time.

[Mr McFadden]

I beg to move, That the clause be read a Second time.

We are by definition entering a new world for UK financial services. Whether it is a brave new world, I do not know, but it is a new world. The measures in the Bill are a small part of that. We are onshoring EU regulations and, although we will still be part of globally agreed standards such as the Basel regime, we will have to decide what future we want in this sector. As the Minister has advised us several times, we should not see the Bill as the totality of what the Government are doing in financial services. There will be a future regulatory review, and there might even be future Bills, so this is one part of the picture. That creates difficulty for the sector, and perhaps for us, in trying to divine where we are going.

That is important because the UK has possibly the most globally significant financial sector of any country in the world. We learned the hard way what the risks of that were in the financial crisis, when the sector ran into trouble. However, the converse is that if the sector is properly regulated, if it pays its way in terms of its taxation contribution, its contribution to innovation, its capacity to bring inward investment to the country and the employment it provides, and if it is properly run, it can also be a huge advantage for the UK. The new clause asks the Government to pull all of that together and take the pipeline of changes that they have in mind, together with the new context, and produce a strategy that gives clarity to the sector, the public and Parliament about where we are going.

That is not particularly unusual for the Government. They do that for other sectors. In the automotive sector, the Department for Business, Energy and Industrial Strategy has the Automotive Council UK, which brings together different players in the industry and looks at everything from supply chains and skills to inward investment. Over the years, it has played its part. The last couple of years have been pretty rocky, for reasons that we all know about, but up until then the UK had a growing, successful automotive industry. We were producing more and more cars each year, and we were very successful at winning inward investment.

If we take the parallel of financial services, there is plenty that such a strategy could cover. To name just a few obvious areas, we have a growing FinTech sector in the UK, which we want to succeed. It is doing more innovation, and we might hear more about that later. We have the development of cryptocurrencies, and it is in the public interest that we have a greater understanding of what that phenomenon is and what it means for investors, consumers and so on.

We have the green finance debate, which we have discussed a number of times over the past couple of weeks. If we really want the UK to be the leading force in green finance over the coming decades, what do we need to do to ensure that that is the case? We have also had an ongoing debate for some years about competition and about the challenges of getting new banking players into the UK market, which is, at the retail level, dominated by four or five high street names that account for the vast majority—90%-plus—of current accounts, deposits, savings and so on.

Then we have more difficult issues, which we have touched on, such as money laundering, fraud and so on. They are an ongoing challenge, and we will be talking more about them later this afternoon. There are probably a lot more, but those are the kinds of things that a financial services strategy might cover.

There is also the regulatory approach. Now that we are no longer going to be part of a common European rulebook, what is the philosophy behind the rulebook that we will have? What will it say to assure people that there will not be a race to the bottom? What will it say on capital to get the balance right between allowing innovation and protecting consumers from organisations that do not have enough resilience? Would there, for example, be a shift away from the traditional British strong focus on property investment to more investment in research, development, manufacturing technology and small business lending? That has been a constant theme. There is nothing partisan about it. There are many strong voices in the Conservative party as well as the Labour party speaking up for small businesses and raising the difficulties with lending and so on. That is also something that could be governed.

We spoke about the environmental, social and governance agenda. The Minister has been resistant to all our amendments on that. All the votes are on the record—we have had three or four of them. The Government do not want anything added to the Bill on environmental sustainability or anything like that. I have also said several times that the ESG agenda is really important for the UK, and the Government have said, at least in rhetorical terms, that they believe the same thing, so exactly how would it be advanced if not in the ways that we have tried to suggest—through the various amendments we have tabled to the Bill?

We have a lot of rebuilding to do as we recover from this pandemic. Many people have described it as a great acceleration in trends. There will be job losses, as the Chancellor tells us, and business closures. Many of the behavioural changes that we have seen in how people live, work and purchase things are likely to stay for a long time. A differently shaped day-to-day economy will emerge from this. Financial services will have a huge role to play in that, and Treasury Ministers will quite rightly want to say something about it.

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[John Glen]

I very much appreciate the sentiment behind the new clause. The right hon. Member for Wolverhampton South East set out all the different areas of focus involved in financial services, taking me through all our different calls for evidence and ongoing pieces of work—there are a number of others, too. However, the new clause is unnecessary.

Only a few weeks ago, the Chancellor made a statement to Parliament on the future of the UK financial services sector. Indeed, Miles Celic from TheCityUK described it as an “ambitious vision” for financial services. Across the range of different elements that the right hon. Gentleman set out, a lot of activity is ongoing. Indeed, a number of consultations are out at the moment. As the Chancellor stated, we are at the start of a new chapter for the industry, and our having an open, green and technologically advanced industry that serves the consumers, communities and citizens of this country and builds on our existing strengths, including our world-leading regulatory system and standards, was the essence of that vision. The UK will remain the most open and competitive place for financial services in the world by prioritising stability, openness and transparency.

The Chancellor set out new proposals to extend our leadership in green finance, including by taking the key step of introducing mandatory requirements for firms to disclose their climate-related risks within five years, making the UK the first country to go beyond the “comply or explain” principle. He also announced plans to implement a green taxonomy and, subject to market conditions, to issue the UK’s first ever sovereign green bond next year. He set out his intention that the UK will remain at the forefront of technological innovation, to provide better outcomes for consumers and businesses.

The UK’s position as a global and open financial services centre will be underpinned by a first-class regulatory system that works for UK markets. The Government already have several reviews under way, including the future regulatory framework review and the call for evidence on Solvency II, to highlight two. We also have the FinTech review, which will report early in the new year. That is the Government’s strategy for financial services now that we have left the European Union.

I hope that I could not be accused, as the City Minister, of being unwilling to come before the House to provide updates on the Government’s work relating to financial services, whether in the Chamber, Select Committees—I think I have made about 12 appearances now—or in Westminster Hall, or of doing that infrequently. The Chancellor and I will continue to provide updates at the appropriate times in the normal way.

Having considered the issue carefully, I ask the right hon. Gentleman to withdraw the new clause.

[Mr McFadden]

The Minister is right to refer to the Chancellor’s statement on 9 November, which was called a vision. While it touched on the green finance things the Minister mentioned, it did not touch on many of the things that I mentioned. He is also right to say that lots of reviews are going on. While it may be unfair to say that that is the problem, there is nothing that really brings them together with clarity about where we are going. I will not press the new clause to a vote today, but we may return to it, so I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 5

Regulation of lead generators for debt advice and debt solution services

“(none) In section 22 of the Financial Services and Markets Act 2000 (regulated activities), after subsection 1A insert—

‘(1AA) An activity is also a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and relates to—

(a) effecting an introduction of an individual to a person carrying on debt advice and debt solution services, or

(b) effecting an introduction of an individual to a person who carries on an activity of the kind specified in paragraph (a) by way of business.’”—(Mr McFadden.)

This new clause would empower the FCA to regulate activities such as paid search and social media advertisements, including the impersonation of reputable debt management charities.

Brought up, and read the First time.

[Mr McFadden]

I beg to move, That the clause be read a Second time.

This new clause is directed at reducing harm to heavily indebted people by clamping down on imposter or clone websites that might direct people away from legitimate avenues of advice without their knowledge. It was suggested to us by the charity StepChange, which reports a serious, large-scale and ongoing problem with imposter or clone sites posing either as StepChange itself or as another reputable charity and preying on vulnerable people in debt. In fact, StepChange estimates that as many as one in 10 people searching for the organisation online are inadvertently led to someone else.

This is not just one of the traditional issues of having time-consuming and frustrating discussions with web providers to get them to take some responsibility for what is on their platforms; it is also a matter of regulation. The new clause proposes to close a regulatory loophole: the activity of introducing an individual to a credit provider is regulated by the FCA, but the activity of introducing an individual to a debt advice or debt solution service is not. That loophole represents a gap in the picture, and the new clause seeks to close that gap by bringing lead generators for debt advice and debt solution services clearly within the FCA’s remit.

The new clause is, perhaps, about quality control. It would protect consumers from clone sites and from unscrupulous operators who would prey on their financial problems. I argue that that becomes all the more important in the context of clause 32 and the establishment of statutory debt repayment plans, because the gateway to them will be through seeking advice from reputable debt advice and debt solution services. It would be entirely with the grain of the Bill, and the Government’s policy intent, to ensure that that gateway is properly regulated by the FCA.

The Minister has been consistent in resisting every amendment and new clause over the past couple of weeks, and I appreciate that he has probably come armed with advice not to accept any amendments, even if they look okay, because there may be a drafting issue or something. However, if there is some reason in his folder why he cannot accept this new clause today or—hopefully this is not the case—if the optics of doing so, because it has been suggested by the Opposition, are somehow too difficult to contemplate, will he at least take the matter away and consider introducing a provision either on Report or at a further stage in the Bill’s passage?

It is very much in the interests of the statutory debt repayment plans, for which he feels—I credit him for this—a big degree of personal ownership, that this regulatory loophole is closed, and that we do what we can to prevent people seeking that kind of help from being led away by unscrupulous operators on the internet. Instead, we must ensure that they are channelled to reputable advice organisations and solution providers—be it StepChange or somewhere else.

[Alison Thewliss]

I rise to support the new clause. It is typical of the eagle-eyed way that the right hon. Gentleman has approached this Bill that he found this particular loophole. I am not sure which of his pots he thinks the Government might think it falls into, but it is a sensible, minor change. The Government would do well to take it on now or bring it back at a later stage. We want to protect people who have fallen into that situation in every way we can. We all know that there are vultures on the internet who want to cut a share of that and exploit people. The new clause is a sensible and reasonable way of addressing that and I commend it to the Minister.

[John Glen]

I take this issue very seriously. I recognise the work of StepChange and I note the letter from Marlene Shiels, chief executive officer of the Capital Credit Union and her support for this. She makes a significant contribution to the Financial Inclusion Policy Forum that I chaired just last week.

The Government are taking strong steps to ensure that lead generators do not cause consumer harm.  As the right hon. Member for Wolverhampton South East said, lead generators identify consumers in problem debt and refer them to debt advice firms and to insolvency practitioners. That can help consumers access appropriate debt solutions and support their recovery on to a stable financial footing. However, I readily recognise the risk that unscrupulous lead generators could act contrary to their clients’ interests. To mitigate that risk, debt advice firms and insolvency practitioners are already required to ensure that any lead generators they use are compliant with applicable rules to prevent consumer harm in the market.  

Under Financial Conduct Authority rules, that includes ensuring that lead generators do not imitate charities or deliver unregulated debt advice, and that they are transparent with clients about their commercial interests. As such, the FCA, as the regulator of debt advice firms—and the Insolvency Service, as oversight regulator of insolvency practitioners—already influences lead generators’ impacts on consumers.

New clause 5 would not materially improve the FCA’s influence over lead generators. Its scope would be incomplete, applying only in respect of lead generators’ referrals to debt advice firms, not to insolvency practitioners. The Government have already issued a call for evidence on whether changes are needed to the regulatory framework for the insolvency profession and will publish a response next year. In the light of our recognition that the matter needs a focus and that work is being done on a response, I ask the right hon. Gentleman to withdraw the motion.

[Mr McFadden]

I am happy to do that. I just appeal to the Minister to try to find a way that he is comfortable with of closing the loophole. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 6

Duty of care for financial service providers

‘(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) In section 1C, after subsection 2(e) insert—

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

(3) After section 137C insert—

“137CA  FCA general rules: duty of care

(1) The power of the FCA to make general rules includes the power to introduce a duty of care owed by authorised persons to consumers in carrying out regulated activities under this Act.

(2) The FCA must make rules in accordance with subsection (1) which come into force no later than six months after the day on which this Act is passed.””—(Mr McFadden.)

This new clause would introduce a duty of care for the FCA which would strengthen the FCA’s consumer protection objective and empower the FCA to introduce rules for financial services firms informed by that duty of care.

Brought up, and read the First time.

[Mr McFadden]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss the following:

New clause 15—Financial Conduct Authority: regard to consumer detriment—

‘(1) The Financial Services and Markets Act 2000 shall be amended as follows.

(2) In section 1C(2), after paragraph (h), insert—

“(i) the prevention of consumer detriment, including but not limited to the promotion of unaffordable debt.”

This new clause would require the FCA to have regard to consumer detriment, including the promotion of unaffordable debt, when exercising its powers.

New clause 18—Duty of FCA to investigate and report on possible regulatory failure—

‘(1) Section 73 of the Financial Services Act 2012 shall be amended as follows.

(2) In subsection 1(b)(ii), at end insert—

(iii) a failure of the FCA to intervene earlier or otherwise act effectively to protect consumers.”.”

This new clause would require the FCA to carry out an investigation into the events and circumstances surrounding any significant failure to secure an appropriate degree of protection for consumers and make a report to the Treasury on the result of the investigation.

New clause 21—Assessment of risks of consumer detriment—

‘(1) Schedule 6 of the Financial Services and Markets Act (2000) is amended as follows.

(2) After paragraph 2D(2)(c) insert—

(d) the risks of consumer detriment associated with the firm’s business model and the likelihood for compensation claims from consumers.”

(3) After paragraph 2D(3), insert—

“(3ZA) When assessing whether the firm has appropriate financial resources to meet the risks of consumer detriment and the likelihood of compensation claims from consumers, the Financial Conduct Authority must ensure that, at all times, firms hold sufficient financial resources to meet any likely compensation claims from customers in full.””

This new clause would ensure that the FCA considers the likelihood of consumer detriment arising from the firm’s business model prior to, and following, authorisation, and that firm’s hold sufficient financial resources to meet potential compensation claims from customers in full.

New clause 23—Consumer redress schemes: FCA reporting requirements—

‘(1) In section 404A of the Financial Services and Markets Act 2000, at end insert—

“(10) Where the Financial Conduct Authority initiates a consumer redress scheme by virtue of the powers conferred in section 404 of this Act, and makes any provisions for its operation by virtue of this section, the Financial Conduct Authority must—

(a) provide an initial written report to the Secretary of State detailing its reasons for any of the provisions it has made for the redress scheme under section 404A;

(b) ensure that any instructions provided to an appointed ‘competent person’ under subsection (1)(k) are included in the above report; and

(c) provide a further written report to the Secretary of State detailing the outcomes from any consumer redress scheme, including copies of any “competent person” assessments relevant to the redress scheme.””

This new clause would require that the FCA provide written reports to the Secretary of State setting out the reasons for any decisions made regarding the parameters decided, and approaches taken, in designing, investigating, and implementing consumer redress schemes, and requires a report on the outcomes achieved for consumers to be made.

New clause 38—Duty of care specification—

‘(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) After Section 1C insert—

“1CA Duty of care specification

(1) In securing an appropriate degree of protection for consumers, the FCA must ensure authorised persons carrying out regulated activities are acting with a Duty of Care to all consumers.

(2) Matters the FCA should consider when drafting Duty of Care rules include, but are not limited to—

(a) the duties of authorised persons to act honestly, fairly and professionally in accordance with the best interest of their consumers;

(b) the duties of authorised persons to manage conflicts of interest fairly, both between themselves and their clients, and between clients;

(c) the extent to which the duties of authorised persons entail an ethical commitment not merely compliance with rules;

(d) that the duties must be owned by senior managers who would be accountable for their individual firm’s approach.””

This new clause would mean that the FCA would need to ensure that financial services providers are acting with a duty of care to act in the best interests of all consumers.

New clause 39—Duty of care specification on all financial services providers—

‘(1) The Treasury must by regulations require all financial services providers to act within a duty of care overseen by the FCA.

(2) The FCA may make rules to ensure all financial services providers act within the duty of care.

(3) Matters the FCA should consider when making duty of care rules include but are not be limited to—

(a) the duties of authorised persons to act honestly, fairly and professionally in accordance with the best interest of their consumers;

(b) the duties of authorised persons to manage conflicts of interest fairly, both between themselves and their clients, and between clients;

(c) the extent to which the duties of authorised persons entail an ethical commitment not merely compliance with rules; and

(d) that the duties must be owned by senior managers who would be accountable for their individual firm’s approach.

(4) If before the end of December in any year the Secretary of State has not introduced a requirement for all financial services providers to act within a duty of care, the Treasury must—

(a) publish a report, by the end of December of that year, explaining why regulations have not been made and setting a timetable for making the regulations, and

(b) lay the report before each House of Parliament.”

New clause 40—Duty of care specification on all financial services providers (No. 2)—

‘(1) At least once a year, the Treasury must review the case for instructing the FCA by regulations to produce rules requiring all financial services providers to act within a duty of care.

(2) If, following the review, the Treasury decides not to introduce such regulations, the Treasury must publish and lay before Parliament a report setting out the reasons for its decision.”

New clause 41—Duty of care on all financial service providers—

‘(none) The Treasury must instruct the FCA to impose a duty of care on all authorised persons providing financial services activity regulated by the FCA by the end of 2021.”

New clause 42—Report on FCA’s progress on duty of care consultation—

‘(1) The Treasury must prepare and publish an annual report setting out the FCA’s assessment of the need for a duty of care and lay a copy of the report before Parliament.

(2) A Minister of the Crown must, not later than two months after the report has been laid before Parliament, make a motion in the House of Commons in relation to the report.”

[Mr McFadden]

New clause 6 is about a duty of care for financial service providers and several other new clauses push in the same direction. It is fair to say that this has been under discussion for some time. A private Member’s Bill was introduced on the subject in the other place about a year ago and the FCA has been involved in a long process of ongoing discussion about it for the past two or three years. The FCA produced a paper on it in 2018 and there was a response in April last year, although it did not reach a definitive conclusion.

Those who argue for a duty of care—I refer again to the charity StepChange—suggest that the current regulatory framework, even with the duty to treat customers fairly, which is part of the FCA’s current advice and regulations to providers, does not provide adequate protection for consumers. They seek to prompt the question from a financial service provider, “Is this right?” rather than just, “Is this legal?” That is a helpful way of considering what difference a duty of care might make.

The legal definition of a duty of care, as quoted in the FCA’s discussion document is,

“an obligation to exercise reasonable care and skill when providing a product or service.” 

Those who favour it believe that it will help avoid conflicts of interest, too and oblige service providers to act in the customer’s best interests rather than, for example, putting the interests of the company above those of the customer it serves.

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[John Glen]

There is ongoing work and ongoing evolving action by the FCA. The Government have taken strong steps to prevent problem debt from occurring and to support those who fall into it. We want to make sure that people have the guidance, confidence and skills to manage their finances. That is why we established the Money and Pensions Service last year to simplify the financial guidance landscape, to provide more holistic support for consumers, and to give free support and guidance on all aspects of people’s financial lives. I welcome the publication of its UK strategy for financial wellbeing, which will help everyone to make the most of their money and pensions.

I have already mentioned the role played by the FCA’s principles of business. Further to that, the FCA has recently concluded a consultation on guidance for firms on the fair treatment of vulnerable customers. The protection of vulnerable customers and consumers is a key priority for the FCA. Although many firms have made significant progress in how they treat vulnerable consumers, the Treasury and the FCA want the fair treatment of vulnerable consumers to be taken seriously by all firms so that vulnerable consumers consistently receive fair treatment. I think that was the key point made by the hon. Member for Walthamstow.

Despite those preventive measures, I recognise that many people still fall into problem debt. Professional debt advice plays a vital role in helping people to return to a stable financial footing. That is why in June the Government announced £37.8 million of extra support, which brings the budget for free debt advice to more than £100 million this year. From May, the Government are delivering the first part of the new breathing space scheme, as discussed in Committee, for problem debt. That gives eligible people a 60-day period in which fees, charges and certain interest are frozen and enforcement action is paused.

We discussed on Tuesday the importance of the statutory debt repayment plan, as part of the debate on clause 32. The Government believe that sufficient protections are in place without expanding the FCA’s statutory consumer protection objective. However, I reassure the hon. Lady that the Government will continue to work closely with the FCA to keep that issue under review.

New clause 18 would introduce a duty on the FCA to launch investigations in situations where there is suspected regulatory failure as a result of inaction or a lack of effective action by the FCA, but that is already covered by section 73 of the Financial Services Act 2012. That section imposes a duty on the FCA to investigate where it appears to the FCA that events have occurred that, among other things, indicate

“a significant failure to secure an appropriate degree of protection for consumers”

either by the FCA or otherwise, and where those events might not have occurred but for a serious failure in the regulatory system, or operation thereof, established by FSMA 2000.

Further, section 77 of the 2012 Act enables the Treasury to require the regulators to conduct investigations in cases of suspected regulatory failure in circumstances where it does not appear to the Treasury that the regulators are already doing so, for example under section 73. The section 77 powers are broader than those set out in section 73, in that the Treasury can require the regulators to conduct an investigation into relevant events where it considers that it is in the public interest to investigate them. In addition, section 77 investigations can consider aspects outside the regulatory system as established by FSMA, which allows a comprehensive review to be undertaken in the public interest. Those existing powers ensure that, in cases where section 73 does not apply, a mechanism remains to ensure that investigations can be conducted in the public interest.

If I understand new clause 21 correctly, it reflects the ongoing concerns of the hon. Member for Walthamstow that she has raised in Parliament previously, specifically about circumstances where a firm fails but compensation is owed to a consumer. While I am sympathetic to these concerns, the Government believe that the FCA, as the independent regulator, is best placed to judge the resources that authorised firms need to maintain in order to carry out regulated activities.

I should explain that the FCA is already required by schedule 6 of the Financial Services and Markets Act 2000 to consider whether a firm’s resources are appropriate to the activities it carries out. It is obliged to take into account the nature and scale of a firm’s business, as well as the risk to the continuity of the services it provides to consumers, and must consider whether the business is to be carried on in a sound and prudent manner, with particular regard to the interests of consumers. The legislation also already requires the FCA to consider how a firm’s potential liabilities might impact the resources it should hold. The Government therefore believe that this new clause does not add anything further to the FCA’s requirements that already exist in legislation.

Once again, I would mention the FCA’s principles for businesses, which already require firms to maintain adequate financial resources and organise their affairs with adequate risk management. The FCA has recourse to take disciplinary action against firms that breach these principles. Therefore, the Government believe that there are sufficient provisions in place to ensure consumers can access compensation where they have suffered detriment.

Finally, I turn to new clause 23. I should first note that the launching of any consumer redress scheme is a significant undertaking, and it is right and proper that the process be open and transparent. The new clause proposes making amendments under section 404A of the Financial Services and Markets Act 2000, referred to as FSMA, which provides the FCA with rule-making powers for consumer redress schemes.

However, the existing legislation already sets out a number of requirements governing the actions of the FCA, including provisions to ensure that its actions are transparent. Rules made under section 404 by the FCA are subject to a formal public consultation before a scheme is put in place. The FCA also publishes a policy statement explaining its decision and the rationale for the provisions in any proposed scheme. That consultation also includes any decision to appoint a competent person, and the scope of the competent person’s responsibilities, which are documented in the policy statement. Finally, it is right that any scheme is monitored and assessed, to ensure that it has delivered its intended outcomes. Given the importance and impact of consumer redress schemes as good regulatory practice, the FCA would as a matter of course monitor the progress of the scheme as it is implemented, which would include assessing the scheme against its stated objectives.

Introducing a statutory requirement for a process that the FCA already undertakes introduces an additional and unnecessary hurdle. I appreciate that there is a desire to ensure that the regulators are properly accountable to Parliament, and I reassure members of the Committee that such an accountability mechanism already exists. As part of the requirements under FSMA, the FCA must already provide an account of its activity to the Treasury on an annual basis, and that account is shared with Parliament.

I regret that I have spoken for some time, but this is an important set of questions, and some more will come up later this afternoon. I hope I have satisfied the Committee, and therefore I ask the right hon. Member for Wolverhampton South East to withdraw the new clause.

[Mr McFadden]

I want to press new clause 6 to a vote.

Question put, That the clause be read a Second time.