Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017
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The Economic Secretary to the Treasury (Simon Kirby)
I beg to move,
That the Committee has considered the draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017.
What a pleasure it is to serve under your chairmanship, Mr Flello. The draft order will amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. This statutory instrument is proposed in the regulatory context of the revised markets in financial instruments directive and the markets in financial instruments regulation. I shall refer to those collectively as MiFID II. They were agreed by the EU in 2014 to strengthen the regulation and transparency of financial and commodity markets—an important commitment by the G20. MiFID II applies from 3 January 2018, and member states are required to transpose the directive into national law by 3 July this year. In the UK, that is being achieved through legislation and regulators’ rules.
I am pleased to say that last month we concluded our consultation on the legislation needed to transpose MiFID II, and now this draft order seeks to amend the regulated activities order, which sets the scope of our financial regulation, to give effect to MiFID II. The key changes are as follows. First, the draft order will allow the new investments and activities that are introduced by MiFID II, including, for example, emission allowances and the operation of an organised trading facility. Secondly, it will transfer the regulation of binary options from the Gambling Commission to the Financial Conduct Authority, where they will be regulated as financial instruments. That will allow consumers to benefit from strengthened consumer protection measures. Thirdly, the draft order will make a number of technical amendments, including the updating of definitions and references.
I am keen not to detain the Committee unnecessarily. However, I am happy to take questions and give answers later.
Simon Kirby
Let me start by welcoming the contributions made by right hon. and hon. Members. It is right and proper that we consider the draft order adequate and effective in meeting our important aim to tighten and reform our legislation, as a response to the weakness that has emerged from the financial crisis. We have consulted extensively on how we transpose these provisions effectively into UK law.
I will briefly touch on a few points. The hon. Members for East Lothian and for Stalybridge and Hyde asked what MiFID II means for Brexit. I will say two things. First, until exit negotiations conclude, the UK remains a full member of the EU, and all the rights and obligations of EU membership will remain in force. During that period, the Government will continue to negotiate, implement and apply EU legislation. Secondly, the outcome of the negotiations will determine what arrangements apply in relation to EU legislation in the future, once the UK has left the EU.
I think it fair to say that we have an open mind about MiFID III. It is about getting the correct balance between regulation and consumer protection; that must always be what we look out for. The hon. Member for Stalybridge and Hyde asked about binary options. It is important that consumers receive at least equivalent protection with binary options as with other derivative products.
The answer to whether the statutory instrument would still become law if rejected is no. We are here in our legislating capacity. This is secondary legislation. I urge all members of the Committee to ensure that we have increased transparency and resilience in our financial markets by supporting the draft order.
Question put and agreed to.
Draft Sovereign Grant Act 2011 (Change of Percentage) Order 2017
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The Economic Secretary to the Treasury (Simon Kirby)
I beg to move,
That the Committee has considered the draft Sovereign Grant Act 2011 (Change of Percentage) Order 2017.
May I start by saying what a pleasure it is to serve under your chairmanship, Mr Bone? As announced at the last autumn statement, the royal trustees—the Prime Minister, the Chancellor and the Keeper of the Privy Purse—carried out a review of the sovereign grant and concluded that it should increase from 15% to 25% of the Crown Estate’s profits two years previously. That will fund both the Queen’s official duties and the urgent 10-year overhaul of Buckingham Palace. The order will implement that change. The Sovereign Grant Act 2011 is the mechanism through which the state gives the royal family the funding they need to carry out the services they perform on this country’s behalf and to maintain the royal palaces.
Buckingham Palace is an important historic property and one of London’s top tourist attractions, so it is clearly important that the royal estate is properly maintained. Prior to the royal trustees’ review, a series of detailed technical assessments were undertaken to examine the material state of Buckingham Palace. They concluded that elements of the palace’s essential services were significantly beyond their maximum useful life and required urgent replacement, unless the palace is to be at serious risk of fire, flood or safety incidents. It was concluded that the most cost-effective way to do so is to undertake a phased programme of works over 10 years, starting from April 2017. The palace will remain occupied and fully operational as the works are carried out wing by wing, preventing disruption to major public events such as the changing of the guard and the trooping of the colour.
The order provides for that urgent overhaul to be taken forward. It will increase the sum by reference to which the grant is calculated each year. Primary legislation will be introduced to amend the 2011 Act to allow for a reduction in the grant once the renovation of Buckingham Palace is completed. The vast majority of the Crown Estate’s profits will still be retained by the Exchequer. This temporary increase in funding will ensure long-term benefits: the palace will be rendered more efficient, more cost-effective and better fit for the next generations of the monarchy.
There will also be a significant increase in the number of people visiting the Palace, with increased access for schools. It will also offer an opportunity for a new generation of construction professionals to work on an historic building through apprenticeships and graduate programmes. The order will provide the necessary uplift in funding to safeguard buildings that are part of our heritage and to ensure that our royal family may continue to perform the services that they undertake for the sake of this country.
Simon Kirby
I thank the hon. Member for Bootle for raising some thoughtful, interesting and sensible points, and for his support. In response to the hon. Member for Edinburgh East, I remind him that the whole point of the 2011 Act was to bring together the different funding streams and provide for the very eventuality that has arisen.
This country’s monarchy is worth some £57 billion. Every year, millions of people come to look at Buckingham Palace, tens of thousands visit it and hundreds of thousands attend functions where our great monarch, the Queen, is able to be present.
Tommy Sheppard
I understand and accept the popularity of Buckingham Palace as a tourist attraction, and as a visitor attraction for people who live in this country. Would it not therefore be reasonable to consider whether the commercial dimension of Buckingham Palace as a venue and an attraction might provide an income stream to fund ongoing capital works to maintain its current quality?
Simon Kirby
The hon. Gentleman raises an interesting point. That is exactly what we are deciding today. There will be 115,000 more visitors each year, because there will be increased access. Some 30,000 more children will be able to visit the palace—only 1,500 can currently do so. There will be an additional 110 events every year. This is a long-term solution. The hon. Member for Bootle was right to say that previous Governments of all colours should perhaps have considered this more carefully, but we are where we are and this is a sensible way forward.
George Kerevan (East Lothian) (SNP)
Is it the Minister’s intention, once the money has been used to refurbish the palace, to come back and change the Act and reduce the 25%?
Oral Answers to Questions
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Matt Warman (Boston and Skegness) (Con)
The Economic Secretary to the Treasury (Simon Kirby)
The Government are taking action to give the United Kingdom the world-leading infrastructure that it needs. The Government-led £1.7 billion superfast broadband programme will extend coverage to 95% of UK premises by the end of 2017.
Matt Warman
From artificial intelligence to mechanisation, we live in a period of unprecedented technological change, and the Government should foster it in rural and urban areas. Can the Economic Secretary confirm that he will resist the calls of a new generation of Luddites for robots to be taxed?
Simon Kirby
I was going to make a joke about the Liberal Democrats, but as there are none in the Chamber I will merely reassure my hon. Friend that the Government have no current plans to introduce a robot tax.
Helen Goodman (Bishop Auckland) (Lab)
Current tax rules do not allow companies to set the cost of mathematical research against tax. That is obviously very out of date in an era of data science, and it does not apply to science and engineering. Will Ministers take this as a Budget representation, please?
Simon Kirby
We have significantly increased R and D tax credits; and, as a mathematician, I agree with the hon. Lady that maths is always important.
Suella Fernandes (Fareham) (Con)
Stephen Timms (East Ham) (Lab)
The Economic Secretary to the Treasury (Simon Kirby)
We are ambitious for a deal, and it is clear that it is in the interests of both sides to maintain reciprocal market access. The important thing, however, is the end result, rather than the mechanism.
Stephen Timms
A lot of jobs in the UK depend on EU banking passports. For example, US banks can locate subsidiaries in the UK and then trade freely across Europe. In the Minister’s view, what are the prospects for keeping all those jobs in the UK after Brexit?
Simon Kirby
We want to ensure that British companies have the maximum freedom to trade and operate within European markets, and financial services are one of the areas in which we will be seeking a bold, ambitious agreement.
Mr Alan Mak (Havant) (Con)
As the Minister continues his discussions on passporting, will he ensure that he maintains a dialogue with business associations and trade bodies such as TheCityUK, to ensure that we get the best possible settlement?
Simon Kirby
I can reassure my hon. Friend that the Treasury is very much in listening mode. We definitely want the best possible deal and we are clear that it is the end result, rather than the mechanism, that is important.
Tommy Sheppard (Edinburgh East) (SNP)
The Economic Secretary to the Treasury (Simon Kirby)
I am pleased to say that the Government are taking action to support the level of real disposable income per head, which is forecast to be 2.8% higher by 2021 than it was in 2016.
Tommy Sheppard
There can be few things more tragic than a Treasury in denial. As sure as night follows day, the collapse of the pound will lead to higher prices, particularly for food and household technology, so when will the Minister’s Department get its head out of the sand and bring forward proposals to boost disposable income, to help people to meet these rising costs?
Simon Kirby
Average earnings growth has now outstripped inflation for 27 consecutive months, and the Office for Budget Responsibility has forecast that real disposable income will be 2.8% higher in 2021 than it was in 2016.
Mr Peter Bone (Wellingborough) (Con)
Recent Office for National Statistics figures show that exports have grown and imports have fallen. Is that not good for jobs, the economy, and employment?
Simon Kirby
Yes, it is good for jobs, the economy and, indeed, the Scottish whisky industry.
Lucy Powell (Manchester Central) (Lab/Co-op)
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
The Economic Secretary to the Treasury (Simon Kirby)
The Financial Conduct Authority has published a summary of the main findings of its skilled persons report on RBS’s global restructuring group. The FCA is carefully considering that, and it would not be appropriate for me to comment while the process is ongoing.
Mrs Sheryll Murray (South East Cornwall) (Con)
Mr Philip Hollobone (Kettering) (Con)
Simon Kirby
The “Breathing Space” proposals are being carefully considered by the Government and we will report on them shortly.
George Kerevan (East Lothian) (SNP)
Unsecured consumer credit is rising at a level last seen before the banking crisis. Does the Chancellor accept that that is unsustainable?
Cerberus Capital Management: Purchase of Distressed Assets
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The Economic Secretary to the Treasury (Simon Kirby)
It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for East Lothian (George Kerevan) on securing this debate. I will give way if the hon. Member for South Antrim (Danny Kinahan) wishes to contribute.
Danny Kinahan (South Antrim) (UUP)
I want to ensure that we are going to put in place or ask for regulations to stop people being able to move from one side of a deal to another. It does happen, and we need transparency and the duty of care. Will the Minister look at the issue? One person moved from being on the board to being on the other side and making money out of the deal. They were then caught taking a bribe in a car. We need a very clear system.
Simon Kirby
It is the long-standing policy of this Government to unwind the interventions made in the financial sector during the banking crisis of 2007-09 and return the assets acquired then to the private sector. That is a key part of restoring normality to the financial system, but in that we need to ensure value for money in getting back taxpayers’ money. We are making good progress in that. UK Asset Resolution, which is responsible for the assets of the former Northern Rock and Bradford & Bingley, has already reduced its balance sheet from £116 billion in 2010 to £37 billion last year. The sale of £13 billion of former Northern Rock mortgages to Cerberus Capital Management was another important step along the way.
As with any transaction of such complexity, the sale required careful analysis and meticulous planning. First and foremost, the Government had to consider whether the sale would meet one fundamental condition: good value for money for the British taxpayer. Secondly, however, the deal needed to ensure the continued fair treatment of existing customers. In this case, they held around 270,000 mortgages and unsecured loans. We are confident that as a result of the detailed preparation we conducted, those conditions were fully met.
It is perhaps worth providing a brief outline of the processes followed. The sale was initially announced at the 2015 Budget, following various expressions of interest and favourable market conditions. A full sales process was then launched that summer. It attracted a good level of competition, with multiple bidders involved, as the National Audit Office noted. At each stage of the process, experts in UKAR worked closely with UK Financial Investments and independent external advisers to assess against the four main criteria used in any public sale, namely: propriety, regularity, feasibility and value for money. Cerberus is an active buyer of assets across the UK and elsewhere, and UKAR carried out thorough due diligence before it was selected. Its bid represented a £280 million premium to the book value of the loans, and, importantly, it maintained the fair treatment of customers.
George Kerevan
I accept what the Minister is saying—it has been justified by the National Audit Office—but in the assessment of the bid from Cerberus, was any account taken of the likelihood that it would use tax avoidance measures to complete the sale?
Simon Kirby
The hon. Gentleman raises a fair point. I will answer it shortly, if he bears with me.
Not only were customers’ mortgage terms and conditions unchanged by the sale, but they continued to be served by the same mortgage company with the same skilled and dedicated staff. In the contract with Cerberus, UKAR went further to ensure that specific additional protections were in place, including a one-year lock-in period that limited any increase in interest rates to changes in the base rate. All the mortgages are still protected by Financial Conduct Authority regulation. Owing to comprehensive planning and preparation, it was a well-executed sale, achieving good value for money and a good outcome for customers.
Various Members have expressed their views concerning purchases of assets by Cerberus. Unsurprisingly, I will not comment specifically on sales made by other parties to a private bidder. However, in the context of our sale, I will turn to some of the specific points raised by Members, including the hon. Members for East Antrim (Sammy Wilson), for East Lothian and for Bootle (Peter Dowd). They made thoughtful and helpful contributions.
One point that was raised was the tax domicile of Cerberus. UKAR’s sale was structured as a UK sale, and the taxes resulting directly from the sale are paid in the UK. However, we do not consider a bidder’s tax jurisdiction as part of the selection process for three reasons: first, to do so would greatly reduce the number of bidders able to participate, which would risk losing the competitive tension that is essential for maximising value; secondly, companies can and do change their tax arrangements, so there would be no guarantee that a UK-domiciled company would continue to be so in the future; and thirdly, to discriminate against a company based on its tax jurisdiction would risk our being exposed to legal challenge.
The hon. Member for Bootle mentioned the Public Accounts Committee. I note that its conclusions were that the transaction was executed successfully and that there were many positives from the sale. The Treasury response to the recommendations was clearly set out in a report, “The sale of former Northern Rock assets”. He also mentioned the NAO’s criticisms and touched on the important area of lessons to be learned. As the NAO report notes, UKAR and UKFI carried out a complex transaction “professionally” and “within a tight timeframe”. As the NAO suggested, we have increased transparency around the objectives of Her Majesty’s Treasury, UKFI and UKAR and ensured that strategic documents are drawn together in one place. UKAR has now published its framework document.
We heard about Project Eagle and the sale of Northern Irish loans by the National Asset Management Agency in Ireland. Specifically on that issue, Cerberus provided UKAR with suitable assurances consistent with the detailed submission it made to the Northern Ireland Committee for Finance and Personnel, which conducted an inquiry into the sale. That provided sufficient comfort. When we selected Cerberus as a preferred bidder, it was on the shortlist for another portfolio in Ireland. More generally, as UKAR would for any bidder, it carried out thorough due diligence of Cerberus as part of the selection process.
The hon. Member for East Antrim expressed various concerns about the treatment of businesses by Cerberus. I listened to those concerns carefully. When it came to the UKAR sale, customer treatment was a key consideration. Our sale did not contain any commercial loans. The NAO report states that the FCA protections for the borrowers whose mortgages were sold remain in place, and that the FCA continues to be satisfied.
We are aware that Cerberus is a buyer of assets across the UK and further afield. It is subject to the UK regulatory regime here and other regulatory regimes in other jurisdictions in which it operates. I am proud to say that the UK Government have ensured that we have a strong system of regulation here in the UK.
We have heard today about other asset purchases by Cerberus. It is an active buyer of assets across the UK and further afield. As I have said, it is not for me to comment on sales made by other parties to a commercial bidder, but we assess all bids thoroughly through our extensive due diligence carried out on any bidder for any assets. We particularly assess value for money and, importantly, continued fair treatment for customers. The assets in the recent £13 billion sale were not distressed assets. Having been originated a number of years ago, they were considered well seasoned assets, and Cerberus paid above book value for them. In any case, ensuring the continued fair treatment of existing customers is a key consideration in all sales, as I have said.
In short, the sale of £13 billion of former Northern Rock assets to Cerberus was a successful step on the way to returning assets to the private sector. It meant £5.5 billion coming back into the national purse, as well as the transfer of nearly £8 billion of liabilities from the public balance sheet to Cerberus. The sale was managed effectively, and it attracted good competition and secured a good price.
Roger Mullin
Minister, you have been talking for some considerable time. Am I being unfair in saying that the gist of your argument is that you do not consider that Cerberus has acted in any way unfairly—
Albert Owen (in the Chair)
Order. I know that the hon. Gentleman was referring to the Minister, not to me, but the Minister must respond now.
Simon Kirby
It is important that the Government attract good competition and secure a good price, but at the same time safeguard the rights of existing customers. It is not just our assessment that that happened but the conclusion of the independent National Audit Office. The Public Accounts Committee also concluded that the sale had been well executed. There is still work to be done in returning to the private sector assets that we acquired in the financial crisis. We will continue to do all we can to meet the same high standards and keep delivering the highest possible value to the British taxpayer.
London Stock Exchange
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The Economic Secretary to the Treasury (Simon Kirby)
Thank you, Mr Hollobone. It is a pleasure to serve under your chairmanship. I congratulate my hon. Friend the Member for Stone (Sir William Cash) on securing this important and topical debate. He has made many thoughtful and detailed points, and I will do my very best to answer them in the brief time I have. The hon. Member for Stalybridge and Hyde (Jonathan Reynolds) also raised some interesting points, which I will attempt to answer as I work my way through my speech; he should bear with me.
What is clear today is that we share the same interest: the continued success of an important, and some would say iconic, British company. The London Stock Exchange Group has a proud history that goes back more than 200 years. While the group is most famous today for its equities exchange, it is in fact a much wider business that includes, notably, one of the world’s major clearing houses.
I well recognise that the proposed merger with Deutsche Börse is a significant development. Let me start by recalling some of its key terms. The merged company will be controlled by a newly created parent company, headquartered here in London. At the outset, it will be owned 54.4% by shareholders of Deutsche Börse and 45.6% by LSE Group shareholders. The board of directors of the merged group—
Mr Philip Hollobone (in the Chair)
Order. I am sorry to interrupt the Minister, but a Division has been called in the House. If there is just one Division, we will return in 15 minutes. If there are two Divisions, we will resume in 25 minutes.
Mr Philip Hollobone (in the Chair)
We have 12 minutes left, of which the Minister can take up to nine.
Simon Kirby
It is a pleasure to be back under your chairmanship, Mr Hollobone. I was talking about the shareholding of the company. The board of directors of the merged group will be drawn from both sides of the group and chaired by the current LSE chair, Donald Brydon. The deal on the terms has now been approved by both sets of shareholders, but official scrutiny of the merger remains outstanding. Let me address that point in response to questions that my hon. Friend the Member for Stone asked about the roles of the FCA and the Bank of England.
The deal must be cleared by numerous regulators worldwide, including in Germany and the UK. In the UK, the Bank of England and the FCA have a statutory role in assessing and approving changes in the control of central counterparties and stock exchanges respectively. On CCPs, the Bank must be satisfied of the reputation and financial soundness of the acquirer, the reputation and experience of any person who will direct the CCP following acquisition, the CCP’s ongoing capacity to continue to comply with relevant regulations, and any money laundering or terrorist financing concerns. On exchanges, the FCA is empowered to intervene if it considers that the change of control would pose a threat to the sound and prudent management of the regulated market. Those assessments remain outstanding and the regulators are in ongoing discussions with the companies.
Of course, the merger is of such a size that it must face rigorous scrutiny from the European Commission on competition grounds. Its investigation is also ongoing and includes the engagement of the UK Competition and Markets Authority in a consultative capacity. It is due to reach its conclusion in early April. That is a complex and sensitive inquiry, which I will not attempt to prejudge.
My hon. Friend asked about the Government’s position. The Government do not have a formal role in scrutinising the merger, and it would not be appropriate for us to take a position either way on the deal, but we are following it closely and are in touch with the regulators.
Another area of concern that was raised pertains to the migration of businesses to Frankfurt if the merger goes ahead—particularly clearing businesses. The merger is subject to ongoing regulatory assessments. These are commercial matters, but for hon. Members’ benefit, let me read out what the LSE Group said on 16 January in relation to speculation about the merger. It stated that
“such action is not contemplated and any statements suggesting otherwise are inaccurate and misguided…LSEG and Deutsche Börse are committed to maintaining the strengths and capabilities of their respective operations in London and Frankfurt. Further, the existing regulatory framework of all regulated entities will remain unchanged and, in particular, there is no intention to move the locations of Eurex or Clearstream from Frankfurt, LCH from London and the US, Monte Titoli from Milan or CC&G from Rome following completion.”
That is what the company said, but let me emphasise that we are not complacent about the position of UK financial services companies, and we will continue to ensure that we support and enable their ongoing success.
On the implications of Brexit, we are in regular contact with not just the LSE but many financial services firms to understand the implications of Brexit for their varied areas of business and their priorities for the new trading relationship as we negotiate with the EU. Our aim is clear: to ensure the continued success of British financial services and the millions of jobs that they bring to people across the UK.
Moving on to specific points raised during the debate, I welcome the thoughtful contributions made by the hon. Member for Aberdeen North (Kirsty Blackman), my hon. Friend the Member for Wimbledon (Stephen Hammond) and the hon. Members for East Lothian (George Kerevan) and for Stalybridge and Hyde. I want particularly to answer my hon. Friend the Member for Newton Abbot (Anne Marie Morris), who asked whether the deal could be postponed. In the long term, this business, like so many others, will need to meet the challenges and opportunities of Brexit. I assure Members that the Government take our role seriously. We will continue to engage with the LSE and other firms across the financial services sector to ensure that we understand their plans and what they consider they need from the arrangements that we are negotiating with the EU.
My hon. Friend the Member for St Albans (Mrs Main) asked what was to stop TopCo moving to Germany. The deal has been voted on by shareholders in its current terms with the London headquarters. It is clearly part of a balanced structure designed to secure the approval of both sets of shareholders. Ultimately, the long-term location of the headquarters is a matter for the board and shareholders, in common with other companies, but importantly, it is worth noting that in this case, the articles of association of the combined company will contain a safeguard that the location of the company cannot change without the approval of 75% of the directors. Also, of course, under the Companies Act 2006, the removal of that safeguard from the articles of association could take place only with the agreement of 75% of the combined group’s shareholders. That is a significant point.
My hon. Friend the Member for Bedford (Richard Fuller) asked whether the companies would merge their central counterparties and whether that would create a systemic risk. The European market infrastructure regulation establishes a strict supervisory framework for CCPs, and in the UK they are regulated by the Bank of England. He was also keen to know more about the Government’s view on takeovers. I have said and will repeat that there is a formal and regular scrutiny system for takeovers of exchanges and CCPs, operated by the Bank and the Financial Conduct Authority. There is also a competition scrutiny process.
My hon. Friend the Member for Stone asked about TopCo moving to Germany. I reiterate my previous comments: the deal has been voted on by shareholders in its current terms with the London headquarters. There will be 50% of directors from each side, and the shareholders’ agreement provides additional and clear reassurance. He asked about the Treasury’s power to direct the Bank of England. It is true that the Bank of England Act 1946 includes that power, but the factors that the Bank can take into account are set at European level in EMIR, and the Bank would still be subject to those constraints in a scenario where the Treasury sought to exercise its power of direction. We can direct it only if we act lawfully, and we cannot direct it to act beyond the scope of its regulatory powers as set out in EMIR.
The Government take a close interest in the developments on the proposed merger and the assessments of the various regulatory bodies involved. Financial services represent an immensely important industry for the UK, and we have been clear that we will pursue a bold and ambitious free trade agreement involving the freest possible trade in goods and services, including in that sector. That is in not only our interests but those of member states across the EU. I thank hon. Members from throughout the House for being here today and sharing the commitment that we all have to the future success of the London Stock Exchange and the sector more broadly.
Unauthorised Overdrafts
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The Economic Secretary to the Treasury (Simon Kirby)
What a pleasure it is to serve under your chairmanship, Mrs Gillan. I thank the hon. Member for Leeds West (Rachel Reeves) for securing this important debate on an issue that we share a keen interest in. I am here to listen and, hopefully, to be helpful.
It is clear that we all share a commitment to ensuring that people across our society can rely on the financial services that they need to manage their money effectively, securely and confidently. We want an economy that works for everyone. For most people, the bedrock of that is a transactional bank account that enables them to manage their personal finances on a day-to-day basis. Access to credit, including the use of an overdraft facility, is an important part of that.
For that reason, the Government are committed to doing two things. First, we will support and encourage competition among financial services providers, not only so that people have more choice over who they bank with, but because we know that more competition inevitably means better options on offer for customers, who can then vote with their feet. Secondly, we want to make sure that British customers are supported in the important financial decisions they make.
The hon. Members who have spoken have expressed the same aims, and I want to discuss the key issues that have been raised. I thank the hon. Members for Ashfield (Gloria De Piero), for Makerfield (Yvonne Fovargue), for Bolton South East (Yasmin Qureshi) and for Islwyn (Chris Evans) for making some thoughtful points, sharing their constituents’ stories and making some more general observations. I am sure that the FCA, which is reviewing high-cost credit, will listen carefully to the debate.
The hon. Member for Leeds West rightly discussed the Competition and Markets Authority. A key question is how to ensure that there is competition. That is why we set up the CMA in the first place as a single stronger and independent competition regulator. It is the CMA’s role to review the market, assess how effectively competition is working and, where appropriate, propose remedies to address any issues. Hon. Members have referred to the CMA’s retail banking market investigation, which was published last summer. I am aware of the variety of opinions on that. It represented a thorough analysis of how competition is working in retail banking, including the role of both unarranged and arranged overdrafts.
The CMA concluded that the retail banking market is not working well for overdraft users. To tackle that, it is imposing remedies to improve overdraft transparency, including setting a monthly maximum charge for unarranged overdraft charges. It also looked closely at whether a hard cap on overdraft fees was necessary on competition grounds, and reached the conclusion that it was not. However, as hon. Members may know, it also recommended that the FCA should assess the ongoing effectiveness of the monthly maximum charge and consider whether other measures, including the introduction of rules, could be taken to enhance its effectiveness further.
The hon. Members for Leeds West and for Makerfield mentioned the action of the Financial Conduct Authority. It is true that the FCA has an important role to play in relation to overdrafts. It is worth pointing out, of course, that it has a much broader set of statutory objectives in relation to financial services, duties, powers and tools than the CMA. It has the power to cap the cost of all forms of consumer credit if that is deemed necessary and proportionate to tackle risks to consumers.
Rachel Reeves
I thank the Minister for his response to the substantive points that I and my hon. Friends have made. Does he think it is inconsistent that the Government have set a monthly maximum charge for payday lenders, but not for high street banks in relation to unarranged overdraft charges? If he does, is it time for the Government to act by setting a monthly maximum charge for unarranged overdrafts as well?
Simon Kirby
I understand the point that the hon. Lady is making. What I think is appropriate is for the Government to listen carefully to what the FCA comes up with later in the year, and to act in consumers’ best interests. I am sure we both agree on that. There is clearly an inconsistency; otherwise we would not be having this debate.
The Government welcome the fact that the FCA is looking closely at what action might be necessary on overdrafts, considering the twin objectives of enhancing competition and protecting customers. That is why, in the light of the CMA’s recommendations last November, the FCA launched a consultation on high-cost credit, including high-cost, short-term credit—payday loans—and overdrafts. The FCA’s call for contributions remains open for another week—until next Wednesday, 15 February. I encourage those watching or listening to the debate, or reading it afterwards, to contribute to that, so that the FCA will be fully informed of the variety of opinion.
Today’s debate is timely, in view of that. It has—and I thank the hon. Member for Leeds West for this—attracted quite a lot of press interest; the subject is obviously of interest out in the real world. I am certain that hon. Members’ views will be heard clearly.
Rachel Reeves
I get the idea that the Minister is wrapping up. At the end of my speech, I asked whether he would meet me and representatives of Which? and StepChange. I hope that he will accept that invitation and that the meeting can be arranged soon.
Simon Kirby
I am not quite ready to wrap up yet; I have a few things to say that I am sure the hon. Lady will be pleased to hear. I should be delighted to meet her and representatives of Which? at an appropriate point—the most constructive time, when we can make the most difference. Obviously, while the FCA is considering the matter and the consultation is still open, the appropriate time may not be next week, but I should be delighted to work with her to come up with a solution that benefits everyone.
I think it is safe to say that the Government will be working alongside the FCA to understand the issues in the market. We will continue to do so, to ensure that it has all the appropriate tools at its disposal to take action where problems are identified. We have heard about some of the issues that people face when taking on overdrafts or other forms of high-cost credit. I can reassure hon. Members that the Government will closely monitor the work of the FCA in looking at that area. I am sure that the views expressed by hon. Members this morning will be taken into consideration as the regulator carries out its work.
We in the Government will also continue our efforts, complementing the work of the FCA. We have taken steps to encourage competition, to support credit unions and to improve financial education. The Government will, through that comprehensive approach, continue to take steps to make sure that British customers have quality choices, good information and strong protection.
It may be helpful if I say, in closing, that the CMA is not the final word in competition. There are important areas outside the scope of its work and the Government will keep a keen eye on the entire area. The Government will take the necessary action to ensure that our banking sector is not only the most competitive and innovative in the world, but fair.
Question put and agreed to.
Draft Investment Bank (Amendment of Definition) and Special Administration (amendment) Regulations 2017
Simon Kirby Excerpts(7 years, 4 months ago)
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The Economic Secretary to the Treasury (Simon Kirby)
I beg to move,
That the Committee has considered the draft Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017.
May I say, Mrs Moon, what a pleasure it is to serve under your chairmanship?
The investment bank special administration regime was introduced in 2011 following the failure of Lehman Brothers. It is a modified insolvency procedure for investment banks that sought to protect more adequately the interests of clients and those engaging in financial transactions.
Two years after the special administration regime came into force, the Treasury appointed Mr Peter Bloxham to carry out a comprehensive review of it. The review was published in 2014 and recommended a set of reforms to strengthen the regime. The draft regulations will implement the recommendations that fall within the Treasury’s remit. They are part of a wider insolvency regime, and should be considered alongside the work of the Financial Conduct Authority to improve client protections.
The draft regulations will improve the speed with which assets can be returned to clients and ensure that the administration process operates more efficiently and more effectively. They have been subject to widespread consultation with the different parts of the market that would be affected by the failure of an investment bank, including the creditors and clients of such banks as well as insolvency practitioners. We also took advice from the banking liaison panel on specific aspects of the regime, in particular to ensure that appropriate safeguards are in place.
I am happy to answer any questions that the Committee might have on the detail of the draft regulations but, in the interests of not detaining Members for much longer, I will do so in my closing remarks.
Simon Kirby
I welcome the contributions made by both hon. Members during today’s discussion. It is right that we consider whether the special administration regime meets the aims set out for it in the legislation. Indeed, we rightly have a statutory obligation to do so under the Banking Act 2009, and that is why Mr Peter Bloxham was appointed to carry out a comprehensive review of the original regime. His recommendations have informed the reforms that we are discussing, and at this juncture I would like to pay tribute to Mr Bloxham’s hard work and tenacity in compiling such a constructive report.
The reforms seek to strengthen the administration process in three ways: by making it easier for client assets to be transferred, by simplifying the procedure for assets to be returned to clients and by providing increased legal certainty. It is important to note how far we have come since the special administration regulations were introduced in 2011. We have learnt lessons from the banks that have been put into the special administration regime, and in designing these reforms we have worked closely with regulators, the Financial Conduct Authority, and the Bank of England, as well as with expert administrators and lawyers. These regulations represent an important step forward as we continue to strengthen the UK’s important financial services sector, not only to ensure this country’s financial stability, but to help cement further our position as a world-leading financial centre.
Some important points have been raised today that I would like to address. First, the hon. Member for Stalybridge and Hyde asked why it has taken so long for these reforms to be implemented. We carefully considered the Bloxham review’s 72 recommendations, which were broadly technical in nature, and worked closely with regulators and expert insolvency practitioners to develop draft legislation. We consulted on those changes in 2016; over the consultation period, the Treasury engaged with representatives of firms, clients and insolvency practitioners. We tested the proposals with the banking liaison panel and participated in industry forums organised by the FCA. We also met representatives from most of the organisations that submitted formal consultation responses. That work was essential. Developing policies that will make a substantive difference was time well spent.
The hon. Gentleman asked why we are not implementing all the Bloxham recommendations. We have implemented the majority of them, and we consulted on our proposed approach in 2016, setting out our rationale as regards the recommendations that have not been adopted. In some cases, there are very good technical reasons for that; for example, the Treasury does not have the power to extend the use of schemes of arrangement. In other cases, our discussions with industry indicated that the reforms in question, such as the recommendation to limit the liability of administrators, would not be beneficial. He also asked about client money held on trust. The FCA is currently seeking feedback on proposed changes to the CASS—client asset sourcebook—rules on the return of client assets against the backdrop of amendments to the special administration regime regulations. He asked about banks’ duties and I am confident that the existing duties are effective in ensuring that clients can access their assets quickly and efficiently. It has become clear that that could not be done in a proportionate way. A specific duty would be disproportionate given the existing statutory duties on banks, custodians and counterparties. As for his very technical questions about regulations 10B, 10D and 10E, I will, with the Committee’s permission, write to him about them in some detail.
Finally, the hon. Gentleman asked about distinguishing assets held for the bank from assets held for clients. Since the financial crisis, the FCA has taken a number of steps to improve firms’ record keeping. These reforms have been extensively consulted on with practitioners who have experience in dealing with pooled accounts.
I will also write to the hon. Member for—for?
Simon Kirby
Aberdeen North. I apologise—it is a very long way from Brighton.
In conclusion, the regulations make important reforms to implement Mr Bloxham’s recommendations and strengthen the regime that covers the administration of investment banks. The reforms they contain should be seen as part of the wider efforts that the Government and financial authorities are making to enhance the regulatory environment and protect financial stability, such as ring-fencing banks’ investment banking activities from their retail operations, and the forthcoming updates to the FCA’s client asset protection rules. Collectively, such measures represent important steps forward to address the problems of the past and strengthen financial stability. I hope that the Committee has found this morning’s sitting interesting and informative and that it will join me in supporting both our efforts and the regulations.
Question put and agreed to.
Bills of Sale
Simon Kirby Excerpts(7 years, 4 months ago)
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The Economic Secretary to the Treasury (Simon Kirby)
In 2014, HM Treasury asked the Law Commission to review the Victorian-era bills of sale Acts. This legislation enables consumers and small businesses to borrow money using their goods as security, while allowing borrowers to retain possession of the goods. In recent years, bills of sale have been most commonly used in relation to logbook loans, which are loans that are secured on a consumer’s vehicle.
The desire for a comprehensive review reflected the Government’s significant concerns about consumer detriment in the logbook loan market, in particular the lack of protections available to consumers who took out a logbook loan, as well as innocent third party purchasers who unknowingly buy a vehicle that is subject to a logbook loan.
In 2014, the Government also fundamentally reformed the consumer credit market, by transferring regulation from the Office of Fair Trading to the Financial Conduct Authority (FCA). This more robust regulatory system is helping to deliver the Government’s vision for a well-functioning and sustainable consumer credit market which is able to meet consumers’ needs.
The Government have ensured that the FCA has strong powers to protect consumers, including the power to levy unlimited fines and require firms to compensate consumers who have lost out, where it finds wrongdoing. The FCA assesses every firm’s fitness to trade as part of the authorisation process, and it has put in place binding standards on firms. It proactively monitors the market, focusing on the areas most likely to cause consumer harm, and it has a broad enforcement toolkit to punish breaches of its rules. This has ensured that firms treat consumers fairly and consumers are better protected from sharp practice by firms.
However, the FCA cannot tackle the inadequacies of the bills of sale Acts, which mean that there are still significant gaps in the protection available for consumers who use logbook loans and third party purchasers.
The Law Commission’s final report and recommendations to reform the bills of sale Acts were published in September 2016, and the Government have now had the opportunity to consider the report fully.
The Government are grateful to the Law Commission for a report which is exhaustive and careful in its treatment of this complex matter, and which makes detailed recommendations for reform.
The Government agree with the Law Commission’s conclusion that consumers and unincorporated businesses should continue to be able to use their existing goods as security while retaining possession of them but that the bills of sale Acts no longer provide an appropriate legal framework and should be reformed. As well as accepting the overarching thrust of the recommendations, the Government welcome many of the detailed suggestions for reform. There are, however, some recommendations where the Government’s acceptance is qualified. We will want to reflect further on these points, and take discussions forward with the Law Commission, stakeholders and other Government Departments.
This is an opportunity for the Government to continue their work in creating a modern, fit-for-purpose consumer credit regime. The recommendations will improve outcomes for consumers by simplifying the information that is presented to them and providing increased protections if they get into financial difficulty. The recommendations will also remove unnecessary burdens for firms, and create new opportunities for small, unincorporated businesses to access finance.
Copies of the Government’s full response to the report’s recommendations will be placed in the Libraries of both Houses once these have been fully considered and agreed with the Law Commission.
The Government are keen that this work should move forward, and have agreed to support the Law Commission in drafting primary legislation to enact the necessary reforms. The Government will seek to use the special parliamentary procedure which is available for Bills that implement uncontroversial Law Commission recommendations, subject to agreement with the usual channels, and to bring forward the legislation when parliamentary time allows.
The Law Commission’s final report is available at:
http://www.lawcom.gov.uk/wp-content/uploads/2016/09/lc369_bills_of_sale.pdf
[HCWS462]
EU: Prospectus Regulation
Simon Kirby Excerpts(7 years, 5 months ago)
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The Economic Secretary to the Treasury (Simon Kirby)
This Government have decided not to opt in to the Justice and Home Affairs (JHA) provision within the European Commission’s “Proposal for a regulation on the prospectus to be published when securities are offered to the public or admitted to trading”.
Article 31(1) of the proposal requires that where member states have chosen to pursue a criminal sanctions regime for breaches of elements of the proposals, those member states must ensure that information can be shared between competent authorities across the EU. As the provision requires co-operation involving law enforcement bodies, the Government believe these are JHA obligations and therefore our JHA opt-in is triggered. The Government will inform the Council of their decision not to exercise their right to opt in to the relevant provision.
The Government have decided not to opt in to these provisions as there are no significant benefits to be gained from doing so. The obligation to share information will fall on member states who have a relevant criminal sanctions regime, and UK competent authorities will be in a position to access this data irrespective of the decision to opt in. The Government have no intention to introduce a criminal sanctions regime in a way that would lead to this regulation imposing an obligation on the UK or on our competent authorities.
[HCWS432]
National Infrastructure Commission
Simon Kirby Excerpts(7 years, 5 months ago)
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The Economic Secretary to the Treasury (Simon Kirby)
I wish to update the House on the establishment of the National Infrastructure Commission.
The purpose of the National Infrastructure Commission (NIC) is to provide expert, impartial analysis of the long-term infrastructure needs of the country. The NIC reports on high-priority issues and produces an in-depth, independent assessment of the UK’s major infrastructure needs on a 30-year time horizon.
On 12 October 2016 the Government informed the House that the NIC would be established on a permanent basis as an Executive Agency of HM Treasury in January 2017. [HCWS181]
The Government are today establishing the NIC as an Executive Agency of HM Treasury, and the Treasury is today publishing a framework document. The framework document sets out the broad framework within which the NIC will operate, and outlines its roles and responsibilities. A copy of the framework document has been deposited in the Libraries of both Houses.
[HCWS431]