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

Richard Fuller Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[The Chair]

Thank you. I call Richard Fuller, who has five minutes. I remind hon. Members please to keep their questions within the scope of the Bill.

[Richard Fuller (North East Bedfordshire) (Con)]

Q Thank you, Ms Ghani. I will stay within the scope of the Bill. I have two questions about the impact of the Bill on established principles of caveat emptor and the expectation that it might have in terms of greater socialisation of losses from decisions that people make. First, Mr Darbyshire from the FSCS, in what way might the provisions of the Bill have an impact on that message that individual consumers who purchase financial products should understand that they are primarily the ones who bear responsibility? Will the Government’s provisions in the Bill affect that in any way?

James Darbyshire: That really is a question of judgment for the Government and Parliament in relation to the impact on the Bill. The FSCS’s role is simply to administer the Government’s redress scheme as efficiently and effectively as possible. We are committed to paying compensation to eligible investors within six months of the scheme going live.

[Richard Fuller]

Q I have just one further question on that. I understand that the change is yours to implement, but from your experience over the years, have you seen any change in expectations?

James Darbyshire: The balance between consumer protection and consumer responsibility is a delicate one. Ultimately, that is a policy question that has to come from the Government and through the FCA. In our role, we are focused on ensuring that consumers can make decisions in a way that they are as informed as possible about whether there is FSCS protection for particular products. That is critical to the way they make decisions. For example, at the moment we have a comms campaign about pensions and investments, to make sure that consumers are checking whether they are covered when they make those decisions.

[Richard Fuller]

Q Thank you. The second part I would like to direct to Ms Howard. From the FCA’s point of view, in terms of improving processes for the regulation of firms, does the Bill—another way of the Government stepping in to compensate the losses—have any impact on the imperative at the FCA to regulate firms as effectively as possible, knowing that, ultimately, the Government will step in if there is an error in your regulatory policies?

Sheree Howard: I will pass that on to Robin, if I may.

Robin Jones: Of course. The first thing to say is no, the Government stepping in in this particular scenario most certainly does not affect the FCA’s commitment to effective regulation, and to making the changes that Sheree set out. As the Government have already noted and the Economic Secretary to the Treasury has highlighted, this is only the third time that such a scheme has been set up in the recent past. It is exceptional and unique. We are not expecting it to be happening on a regular basis.

At the FCA we have accepted all the recommendations of Dame Elizabeth’s report, and Raj Parker’s report into Connaught. We are now taking a number of steps to respond to that. We have steps that we are taking this year. As we have highlighted, our new chief executive, Nikhil Rathi, has a significant transformation programme in place and has brought in a range of external executive directors to lead that change and to bring an operational excellence focus to the changes that are needed in the organisation. I do not see this scheme and the Government stepping in, in unique and exceptional circumstances, as creating any risk of diverting our focus.

[The Chair]

Thank you. I call Gareth Thomas—you have six minutes.

--- Later in debate ---

[Richard Fuller]

Q Thank you, Ms Ghani. Mr Taylor, this Bill arises in large part because of an acceptance of some regulatory shortcomings as they applied to a particular firm and, in part, it results in an expectation, as you have just said, of a maximum levy on other firms in the industry that have operated fairly, ethically and well. Do you think that that is the right solution to the identified problem or is it just a necessary requirement as a result of the problem?

David Taylor: Like a number of other systems, the Fraud Compensation Fund was set up to be an industry-funded system. Our role in this is simply to administer that system and it has become apparent that, in order to deal with the cases that are eligible, more money will be needed. As I understand it, the plan is to maintain the system of industry funding and the Government will be consulting in the autumn on any changes to the levy rates.

[Richard Fuller]

Q Administering yes, but I think you also have discretion to decide at what level you charge the levy.

David Taylor: Yes, that is true.

[Richard Fuller]

Q The explanatory notes to the Bill say:

“The FCF is funded by a levy on eligible pension schemes and at the time of the judgment had assets of £26.2m. Even with future levy income, the expectation is that there will be unfunded liabilities in the region of £200m to £250m.”

Is it your expectation that the Government’s consultation later in the year will be about resolving that funding shortfall or that, with current resources, over an acceptable horizon, that funding shortfall can be reduced?

David Taylor: I will pick up on a couple of points there. To go back to the question of how big the shortfall is, as I said earlier, those numbers are based on our best current estimate of the claims that will come in. As for how that shortfall is then funded, the loan that we are talking about and that the legislation enables will effectively resolve the cash-flow issue while we make the payments. As I understand it, the plan is that it will be reimbursed through the fraud compensation levy. In terms of what the levy is, there is a balance to be struck between the level at which the levy is set and the period over which we are required to pay the money back to Government.

[The Chair]

I call Mr Gareth Thomas.