Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)

Peter Grant Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

Q Are you telling us that it was a difficult thing to swallow but you now have the systems in place to deal with it?

Sheree Howard: I was not in the FCA at the time, but it was a very large assumption of remit. We have changed systems. We have implemented various programmes highlighted in Dame Elizabeth’s report on delivering effective supervision and effective authorisation programmes.

As I have already outlined, the financial services market is not sitting still; the FCA cannot sit still—hence the changes that are under way and will be a fact of life going forward. We are undertaking a significant programme to ensure that we invest in digital and data and have much greater access to the information, given the quantum of firms that we oversee.

[Peter Grant (Glenrothes) (SNP)]

Q May I start with the witnesses from the Financial Services Compensation Scheme? I am happy to let you decide among yourselves who is best placed to answer. One of the major problems with LCF was that mini-bonds were unregulated, and the same applies to a lot of other unregulated businesses involved in the same activity. If a decision was taken to make the sale of mini-bonds a regulated activity, would it cause administrative difficulties for the FSCS to start to include them in its compensation scheme?

James Darbyshire: I don’t think it would cause administrative difficulties; it would just mean an additional area of coverage for the FSCS. The cost to levy payers—to the financial services industry—would potentially go up, depending on whether there were any failures involving mini-bonds.

[Peter Grant]

Q Are you able to give an indication of how many claims or inquiries the scheme receives from people who turn out not to be entitled to compensation because their investments were unregulated?

Simon Wilson: Unfortunately, I cannot give an accurate figure, but I would be happy to look it up and come back to the Committee.

[Peter Grant]

Q I appreciate that you did not have notice of the question, but would it be fair to say that a number of investors come to the Financial Services Compensation Scheme and discover that their investments are not covered?

Simon Wilson: We certainly get calls and contact from our customers regarding investments that they made that we are unable to protect—that is correct.

[Peter Grant]

Q I shall direct my questions on the Financial Conduct Authority to Ms Howard, but if she wants to pass them on to Mr Jones please feel free to do so. The Financial Conduct Authority uses the term “unsophisticated investors” to described investors for whom investment is not a way of life but tends to be an occasional activity, investing a pension or redundancy lump sum. Do you believe that these investors understand that a company that is regulated by the FCA—that is allowed to display the FCA logo on its website—might still be involved in the sale of unregulated investments? Do they fully understand that distinction?

Sheree Howard: I will look to my colleague Robin in a moment, but Dame Elizabeth Gloster’s report highlighted the halo effect that occurred in LCF. It was unique as it was an authorised firm issuing mini-bonds, which are not regulated although the firm was authorised for other activity but was not undertaking regulated activity.

On whether unsophisticated customers understand that, we are seeking ways of working with our partners to enhance that understanding. There is certain information on that in the financial services register, but people who invest little may not understand that, so it is an area of focus for us, including thinking about how we might most effectively act against that halo effect. That includes strengthening our gateway—our authorisations process—implementing a nursery, where we look at firms shortly after to ensure that they operate in line with our norms and standards. We are looking to do that as part of our transformation programme, as well as considering legislative routes that might help—for example, not having the logo and the FCA name.

[The Chair]

May I ask witnesses to keep their responses as short as possible so that we can get in more questions from Members? Mr Grant, will you make this your final question, please?

[Peter Grant]

Q Possibly—depending on the answer.

Ms Howard, another major problem has been not the unregulated activities carried out by regulated organisations, but unregulated companies that hide behind the fact that some company associated with it is regulated—for example, if a regulated company gives section 21 authorisation for its marketing materials. I will ask the same question again: do the people being encouraged to make these investments understand that the fact that marketing material is issued by a company registered with the FCA does not mean that its activity is regulated?

Sheree Howard: In evidence as part of LCF there was substantial discussion of the financial promotions regime—of the section 21 approval regime in particular. The Government are currently considering changes to that regime to help to improve understanding by making it a specific gateway so that we can test firms that wish to give such approvals to ensure that they do so appropriately. That should help to ensure that consumers understand better.

[Matt Rodda (Reading East) (Lab)]

Q I thank the witnesses for their time in giving evidence this morning. As the shadow pensions Minister, I have a series of questions on pensions, but I preface them by pointing out to those watching proceedings today who are not pensions experts that there have been some absolutely dreadful pensions scams.

--- Later in debate ---

[The Chair]

I turn now to the SNP spokesperson, Mr Peter Grant.

[Peter Grant]

Q Thank you, Ms Ghani. The Fraud Compensation Fund comes into operation only when fraud or misappropriation has been established, certainly in the view of the board. How much of a delay does that cause between the collapse of a company and the people who had put into that company getting their compensation?

David Taylor: From the point at which an application is made to us, through to our making a payment into the scheme, we would estimate that it takes somewhere between six and 18 months to process that application and establish whether the various necessary tests have been satisfied, particularly a loss to the scheme due to dishonesty, and whether all other avenues for redress have been exhausted, because we are the fund of last resort. Once the application comes to us, it is relatively quick. However, in relation to the schemes that we are talking about here, people have been waiting for some time as a result of the uncertainty about the eligibility of those schemes for FCF compensation.

[The Chair]

Can we ensure that the questions are in scope, Mr Grant?

[Peter Grant]

Q Thank you, Ms Ghani. Secondly, Mr Taylor, can you outline the basis of your calculation or estimate that the cost from historical cases will be around £350 million? Is there an appreciable risk that the cost could be significantly higher than that?

David Taylor: The way that these cases typically work is that when they become known, the Pensions Regulator appoints a professional trustee to manage the case and to seek to bring in any assets that they can, any claims against the wrongdoers and so forth. The information that we have on the amount of claims is based on information that we have gleaned to date from the professional trustees and/or the Pensions Regulator. We have been liaising with them for some years in relation to these cases.

Inevitably, it is not until they make their formal application to us and provide us with all the documentation that we can really get into the numbers, so we have greater certainty about the numbers that have already applied, perhaps slightly less certainty about the longer-term pipeline.

I think it is fair to say that, based on everything that we have done to date, we are reasonably confident about the order of magnitude of the claims that we know about. There is no legal reason why we could not get more claims in future, so I cannot say, no, that number is not going to go up. For the reasons I mentioned earlier, about these claims not being so relevant anymore, we would perhaps be slightly surprised if it went up a great deal.

[The Chair]

I now call Mr Matt Rodda.

--- Later in debate ---

[The Chair]

I call the SNP spokesperson, Mr Peter Grant.

[Peter Grant]

Q Thank you, Ms Ghani, and good morning to all of our witnesses.

Dame Elizabeth, may I come to you first? You will be aware that there are amendments that the Committee will consider later that ask for the Secretary of State to be required to report various things to Parliament. In particular, one amendment asks for a report within six months on progress towards the implementation of the recommendations in your report. Clearly, not all of the recommendations will be implemented within six months, but in your view what would be a reasonable time scale for Parliament to ask the Secretary of State to come back and give us an update as to what had been achieved by that point?

Dame Elizabeth Gloster: Thank you for the question; I don’t think I am really qualified, in terms of parliamentary process, to answer it. What I can say is that it was a matter for the FCA to determine how it responds to my recommendation, and my report specifically said that any such response should involve an assurance exercise to confirm that any of the steps, whether recommended by me or otherwise, to cure the defects in the regulation process have indeed achieved the desired objective.

I believe that implementation of my recommendations should be closely monitored, but I don’t really have a view as to whether that means the Secretary of State should be required to lay a report before Parliament, or, if they are, within what timescale. There may be other ways of monitoring progress in relation to the implementation of my recommendations, such as via the Treasury Committee or otherwise.

I think that is the best answer that I can give you.

[Peter Grant]

Q Thank you very much for that. Perhaps I can frame the question in a different way: would it be reasonable to expect to see significant progress within six months in the implementation of your recommendations?

Dame Elizabeth Gloster: I would hope so, but I am not saying that in an informed way. Nevertheless, since the FCA has had my recommendations, as indeed has the Treasury, for some months how, I would hope that they are cracking ahead with implementing the recommendations right now. I suspect that the answer to your question is probably “Yes, it would be reasonable”.

[Peter Grant]

Q Thank you. I have a final question for you, Dame Elizabeth. We hear a lot about phrases such as “mini-bonds” and “mis-selling”. Can those concepts be defined clearly enough to form the basis for a wider legal compensation scheme, if Parliament and the Government were minded to do so?

Dame Elizabeth Gloster: Well, I am a lawyer, so I can define anything, I suspect—[Laughter.] At the time, mini-bonds were not defined and nobody really knew what was being referred to. But, yes, of course you can define a bond that has particular attributes and define it as a mini-bond. It is a slightly open-ended question, but I would have thought that the answer is yes, you can define a bond with particular attributes that might or might not attract protection.

I do not know whether either of my colleagues want to come in on that answer.

[Peter Grant]

I can see on the screens that they are shaking their heads, so we will take that as a “no”. For the record, I do not know whether the camera showed this, but one of the lawyers on the Committee was jumping for joy and waving his arms about when you announced, Dame Elizabeth, that a lawyer can define anything when asked to do so. You have one friend on the Committee.

Dame Elizabeth Gloster: I am not expecting people to agree with that comment; it was only a frivolous comment.

[Peter Grant]

Q I turn now to Mr Agathangelou for the Transparency Task Force. I have a question for you that is similar to the one I just asked Dame Elizabeth. You are aware that there are two amendments asking for the Secretary of State to be required to bring reports back to Parliament, which essentially start to look at the wider issues of investment, mis-selling, regulation and compensation. Do you agree that there is a need for something like that to be brought back to Parliament and, if so, why?

Andy Agathangelou: I certainly do agree. The reason I agree is because there is a mountain of evidence suggesting that there are many similar cases to LCF—Connaught, Lendy, FundingSecure, Blackmore Bond, Exmount, Bentley Global, Store First, Park First, Premier FX, Woodford.

We have to ask ourselves one fundamental question: do we want the public to have good reason to have trust and confidence in our financial ecosystem? If the answer is yes, it follows that we must also want the public to have confidence and trust in the financial regulatory framework that oversees it. Unless we get to that point, we cannot have what we want, which is a system that we can all rely on.

I would argue very strongly indeed that we must look at, for example, Blackmore Bond. The evidence is crystal clear that there has been catastrophic regulatory failure. We need to do what is uncomfortable and open up the can of worms that is there, and the can of worms that is within Premier FX. We need to have the courage to recognise that things have gone wrong. We do not need to make it in any way personal—this is a systemic issue. We will only start addressing these problems if we move away from short-term, tactical, reactive responses to long-term, strategic, proactive responses. I and the many members of our organisation would be very pleased if Parliament were to decide to properly investigate the many other catastrophic regulatory failures that have taken place.

[The Chair]

I ask witnesses to make sure that you are on mute if you are not speaking, and to keep answers short. Mr Grant, is this your final question?

[Peter Grant]

Q Yes. I just want to ask Mr Bishop if he has anything to add.

Mark Bishop: Yes. I strongly endorse what my colleague Andy Agathangelou said and I would like to add a little more information.

As far as I am concerned, the debate is about what happens when the regulator fails in its statutory duty to protect consumers. There are a number of options. The consumers can bear the costs, and that is tough; the consumers can be compensated by the Treasury; or they can be compensated by the FCA.

At the moment, there is no effective route to be compensated by the FCA, because in the Financial Services Act 2012, Parliament—rightly or wrongly—gave the FCA broad exemption from civil liability. It is almost impossible to sue. There is a very narrow carve-out on breach of human rights and acting in bad faith. At some point, someone is going to try the human rights angle, but I do not think anyone has successfully done so yet, because the costs are high and the FCA effectively has unlimited resources.

Knowing that it gave that exemption, Parliament also created a complaints scheme. Unfortunately, it then allowed the FCA to specify the complaints scheme. As a result, the FCA has determined that it cannot give out material levels of redress and it cannot give out any redress where there is an allegation that the regulator has failed in its statutory duty—it has been negligent or it has just not done the job properly. In effect, there is no route for consumers to receive redress. There is a need to create one.

There are big ways of doing that, such as having a royal commission, as happened in Australia. There are also simple, pragmatic, quick ways of doing it. Modifying the Bill so that it could deal with other legacy cases of regulatory failure would be a very sensible way to do it.

[The Chair]

I call Matt Rodda.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Peter Grant Excerpts

2nd reading
Tuesday 8th June 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP) [V]]

I am pleased to be able to speak in this short debate and to confirm that the SNP will not oppose Second Reading, but I am angry and frustrated that the debate needs to take place at all. Most parts of the legislation are only necessary because of a catalogue of failures of Government, of legislation and of regulators.

I will speak first about the second of the two parts, on the Pension Protection Fund. One of the first times I spoke in Parliament, just a few days after my maiden speech, I expressed concerns about pension liberation scams. I asked the then Secretary of State what steps the Government were taking to protect people from them, to make sure changing the rules would not just make open season for the scammers. We now know that the answer to that question is that the Government were doing nothing, or if they were doing anything, they did not do nearly enough. Some £350 million has been stolen from people’s pensions using these scams. Those pensioners should be compensated from the Pension Protection Fund, and I would support a provision in clause 2 to allow that to happen.

Clause 1 sets up the promised compensation scheme for victims of the London Capital & Finance scandal. About 11,000 people were affected, of whom 2,000 got some compensation and 9,000 got nothing. I do not think any of the 11,000 understand why some qualified for compensation and some did not. It is very welcome that the Bill will provide some redress for the 9,000 or so bondholders who would have otherwise got nothing. It is welcome, but it is not enough.

The House of Commons Library has described the Government’s decision to set up the compensation scheme as “a somewhat exceptional response.” The response is exceptional, but the scandal to which it responds is anything but. It is the latest, and sadly almost certainly not the last, in a roll of shame that includes Equitable Life, Premier FX, Connaught, Henley pensions, Blackmore Bond and many others. The victims of some of these schemes get compensation, but tens of thousands get nothing.

Blackmore Bond, for example, went into administration in May 2020 and its bondholders are unlikely to see any of the £46 million investment that the company’s directors had promised them was safe and guaranteed. One of my constituents lost his £40,000 life savings to Blackmore Bond. I have to disagree with the Minister’s claim that LCF was unique or even distinctive in any material way from Blackmore Bond and various other mini-bond failures. LCF hid behind its own FCA registration knowing that it had nothing to do with the products it was selling. Blackmore Bond hid behind the FCA registration of other companies that acted as its representatives. The intention in all cases was clear: to mislead investors as to the degree of protection that the Financial Conduct Authority would give them, when in most cases the companies knew that the FCA would give no protection whatever.

Like LCF, Blackmore Bond could have been stopped much sooner if the Financial Conduct Authority had acted on the warnings it was receiving as long ago as early 2017. One came from an eyewitness who offered to let the FCA into his office to watch and listen at first hand to the “unlawful” telephone sales practices that the company’s representatives, Amyma Ltd, were using—his words, not mine. It took two and a half years for the FCA to remove Amyma’s right to act as authorised representatives. Several months later, again as part of its response to the collapse of LCF, the FCA banned the sale of mini-bonds to small retail investors. Some £26 million of the total investor losses in Blackmore Bond were from bonds sold after March 2017—after the Financial Conduct Authority had enough information to take decisive action, but before it had taken the action that was needed.

I want to see legislation, or possibly even an amendment to this Bill, that makes schemes similar to the LCF compensation scheme available to victims of other pension and investment scams without them having to wait for a public inquiry and a new Act of Parliament for every single one. I want to see the Government getting serious about dealing with the shysters and charlatans who too often seem to walk away unscathed from these scandals, or more likely get driven away in their chauffeur-driven luxury cars, leaving their victims in many cases almost destitute. I want to see a regulatory regime that works, not just to compensate the victims at public expense, but to stop the crooks and chancers from being able to con people out of their money in the first place.

The fact that the Minister admitted in his opening speech that paying compensation to all victims of pension or investment scams would place an unacceptable burden on the public finances is one of the biggest admissions of regulatory failure by any Government Minister that I can ever remember. While we welcome the steps taken in the Bill, the message very clearly from the Scottish National party, as it was from the Labour Front-Bench spokesman a few minutes ago, is that this is not even enough to be the start of the action needed to make people’s pensions and investments safe from the crooks.

Oral Answers to Questions

Peter Grant Excerpts

Monday 8th March 2021 Commons Chamber

[Marion Fellows (Motherwell and Wishaw) (SNP)]

What assessment she has made of the implications for her Department’s policies of Budget 2021.

[Peter Grant (Glenrothes) (SNP)]

What assessment she has made of the implications for her Department’s policies of Budget 2021.

[The Secretary of State for Work and Pensions (Dr Thérèse Coffey)]

Since the start of the pandemic, our priority as a Government has been to protect lives and people’s livelihoods. That is why we are continuing to give our support, extending the temporary £20 a week increase in universal credit for a further six months, taking it well beyond the end of this national lockdown. I should point out to the House that total welfare spending in Great Britain for 2020-21 now stands at an estimated £238 billion, 11.4% of GDP. Alongside that, the Budget confirmed the ongoing measures that we will be taking as part of our plan for jobs, including the expected starting of the restart programme, particularly focused on long-term unemployed, before the summer recess.

[Dr Coffey]

Discussions between Ministers are normally confidential, but the answer is no, the reason being that we have a process that was put in place as a temporary measure relating to covid. The rationale for that was set out last year. I encourage the hon. Lady to genuinely consider encouraging people who are still on legacy benefits to go to independent benefits calculators to see whether they would automatically be better off under universal credit. Universal credit has been a huge success during the last 12 months—if not the years before that, but it has particularly shown its worth—and I genuinely encourage people to really consider whether they would be financially better off moving benefits now rather than waiting, potentially, to be managed-migrated in the next few years.

[Peter Grant [V]]

I think the Minister has possibly given the game away there by linking an explanation of her refusal to ask for an uplift to legacy benefits to an attempt to pressurise my hon. Friend the Member for Motherwell and Wishaw (Marion Fellows) into pushing her constituents to move from a useless system of legacy benefits to an equally useless system of universal credit.

Does the Secretary of State not accept that the fact that universal credit had to be increased by £20 a week as soon as lockdown was imposed is a clear indication that the underlying rate of payment of universal credit is not adequate for people to live on? I defy anyone on the Conservative Benches to live on universal credit for more than a few weeks, never mind two to three years. Will the Secretary of State now accept that the underlying rate of universal credit is utterly inadequate and that the £20 uplift, as a minimum, should be made permanent with immediate effect?

[Dr Coffey]

No, I do not accept that, and I want to be clear. It has been explained to the House in multiple ways over the past year why that decision, which the Chancellor announced last year, was taken at the time. Let us be straight about this: universal credit is working and will continue to work. It worries me how many Members of Parliament criticise universal credit when it is clearly working. It has done what it was designed to do. For those people who have had their hours reduced, universal credit has kicked in and the payments have gone up. Frankly, unlike in the last recession, in 2008, when the Labour party did nothing to help with some of the financial instability that people were going through, I am very proud of what we have undertaken by investing over £7 billion extra in the welfare system in this last year.

Oral Answers to Questions

Peter Grant Excerpts

Monday 25th January 2021 Commons Chamber

[Dr Coffey]

My right hon. Friend raises an important issue. Within the last year, we have reviewed parts of the complaints process. I am also conscious that my noble Friend Baroness Stedman-Scott, who leads on this, has arranged for more resources to go into the independent case examiner. It would be helpful if my right hon. Friend could share with me or with the noble Baroness the precise details, so that we can investigate what has happened.

[Peter Grant (Glenrothes) (SNP) [V]]

Most of my constituency has hardly seen temperatures above freezing since before the turn of the year. Pensioners in around 200 other parts of the United Kingdom are now getting the cold weather payments they are entitled to, but because of rules set out by the Department, thousands of pensioners in my constituency do not qualify for a single penny. Could the Secretary of State explain how that is fair?

[Dr Coffey]

I am not sure which specific payments the hon. Gentleman is referring to. I have highlighted, as has the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Colchester (Will Quince), the warm home discount scheme. There are other winter grant schemes, which have specific criteria. If the hon. Gentleman would like to contact one of the Ministers in the Department directly, I am sure that we can look into that casework for him.

Universal Credit: Delayed Roll-Out

Peter Grant Excerpts

Tuesday 4th February 2020 Commons Chamber

[Peter Grant (Glenrothes) (SNP)]

Will the Minister reconsider the ill-advised and, frankly, insulting use of the word “scaremongering”? It is not scaremongering when food banks talk about a massive increase in demand, and when local authorities report huge increases in rent arrears; nor is it scaremongering for local authorities to report having to spend a lot of their scarce resources to make up for the shortfalls of universal credit. If the Minister wants to insult me by accusing me of scare- mongering, that is fair enough; when he insults me for raising the concerns of my constituents, he insults my constituents. Will he apologise for that, and will he reconsider the inflammatory language he has used?

[Will Quince]

I meet stakeholders in relation to the Department every single week, and I take the concerns and issues they raise very seriously because they are largely based on evidence. When I refer to scaremongering, I refer to the tone and language and rhetoric so often used by Opposition Members.

I did not quite get to answer the question by the hon. Member for Coatbridge, Chryston and Bellshill (Steven Bonnar) and in fairness, I should. He mentioned hard-working people. It is important to stress that income inequality has been falling under this Government in real terms. The national living wage will rise to £8.72 in April, and to £10.50 by 2024. Our tax changes will make a basic rate taxpayer more than £1,200 better off. We have doubled the free childcare available to working parents. We are doing a huge amount to tackle the cost of living and to support working parents.