Financial Conduct Authority: Accountability

Wendy Chamberlain Excerpts

Wednesday 1st May 2024 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered the accountability of the Financial Conduct Authority.

It is a pleasure to serve with you in the Chair, Sir Philip. I welcome the Minister to his place. I know that he has an interest in these issues, and I hope that this debate will be a productive exercise for us all.

It may be worth explaining a little bit about how I came to be interested in the FCA. I probably speak more about fishing than financial services in this House, but the FCA came to my attention as a consequence of constituents who I have been helping. They were victims of a Ponzi scheme, and they lost hundreds of thousands of pounds as a consequence of fraud. The perpetrator was sentenced to 14 years, later reduced to 10 years, in the High Court of Justiciary.

On no fewer than three occasions, the FCA, or the Financial Services Authority as it was initially, failed to read the warning signs and take action. As a consequence, that was allowed to continue. Had it acted at the first available opportunity, there would have been only one victim of Alistair Greig, rather than hundreds.

As is often the case with these matters, a handful of people were determined to fight, but they were rebuffed at every turn. They were told, “No, this is nothing to do with us. It is not a matter of regulation; it is a question of the creation of a principal and of an agent,” and the rest of it. They took court action, which cost them £2 million, and they lost, but eventually the FCA was forced to put them into the financial services compensation scheme, which gave most of them compensation, albeit capped at £85,000. One of my constituents was out for £130,000, so he is £45,000 down and has suffered a further loss as a consequence of the fact that he was one of the brave souls who was party to the court action. The 95 people who were behind that court action are now left with a bill of almost £2 million.

Notwithstanding the fact that this is a consequence of the way that the FCA has gone about its business, it wishes to have no further part in any discussions with the people who were affected. I organised the screening of a documentary in the House a few weeks ago. Even the judge who heard their case turned up. I have never heard of this happening before, but the Financial Conduct Authority did not want to know. No one from the organisation was prepared to come to this House, sit in a room for an hour with the people whose lives had been most dramatically affected by their decisions, look them in the eye and explain what they had done.

[Wendy Chamberlain (North East Fife) (LD)]

My right hon. Friend is outlining a very concerning story. When many hon. Members think about the FCA, including me as an MP from the 2019 intake, it is in relation to its legislative authority for ensuring the changes on access to cash. Does he agree that ensuring that people get the right support so that communities have the access to cash that they deserve is a real concern?

--- Later in debate ---

[The Economic Secretary to the Treasury (Bim Afolami)]

It is a pleasure to be here. I thank the right hon. Member for Orkney and Shetland (Mr Carmichael) for raising this extremely important issue for debate. Neither he nor the House will be surprised to hear that the Government agree—and I very strongly agree—that accountability for the financial services regulators is of the utmost importance. Before I was in my current post, I set up, chaired and ran the Regulatory Reform Group, which brought together over a dozen Members of this House to think about how we reform the regulatory and accountability structures in this country. I have thought and been concerned about that issue for many years.

The right hon. Member for Orkney and Shetland and other Members will be aware that the FCA is operationally independent and must act to advance the objectives that Parliament has set for it. Independence of the regulators, however, must be balanced with clear accountability; appropriate democratic input, for which this debate is one forum; and transparent oversight. That is why the FCA is fully accountable to Parliament and the Treasury for how it discharges its functions.

To ensure that the regulators consider the financial services sector’s critical role in supporting the British economy, as the right hon. Gentleman pointed out, last summer we gave the regulators new secondary objectives to facilitate the international competitiveness of the UK economy and its growth for the medium to long term. By putting growth and competitiveness at the heart of our regulatory system, while retaining the primacy of protecting the safety and soundness for financial services firms and the wider system, we will ensure that the sector remains at the forefront of the global economy. It is vital that we hold the FCA to account for delivering on those objectives; I take that responsibility very seriously.

I will come on to some of the remarks made by the right hon. Gentleman, in no particular order. What comes to my mind first is that he mentioned the FCA’s so-called naming and shaming proposals, which have been covered in the media and elsewhere. The Chancellor has been publicly clear that he thinks the FCA should rethink that approach, and I share his view completely. I am particularly interested in, and strongly support, the remark made by the right hon. Gentleman that it is most often the small players that see the sharp end of that approach. What that does to innovation, competition and actual money for individuals invested in those small players, be they customers or shareholders, is very significant. The right hon. Gentleman explained eloquently that the impact of being named and shamed very early could be significant. I want to put on record, following up on what the Chancellor has said publicly, that I believe the FCA should rethink that and rethink it quickly.

[Wendy Chamberlain]

That is my concern, given what I have heard today in relation to access to cash. One real concern of communities is that banks rush to leave town and leave one bank standing. When we think about banking hubs and communities, we are thinking about ensuring that the most vulnerable have access, so it is really important those bigger players are held to account. Does the Minister agree?

[Bim Afolami]

The hon. Lady makes an important and fair point. I agree with her that access to cash—which, as she knows, this Government legislated for—needs primacy in the way she has described. Banking hubs are a replacement when several banks have shut in a town or large village, and I believe that the assessment criteria relating to where they come in and the speed of the roll-out should be looked at again. To be fair, that is not down to the FCA. The expected timeframe for it to finish its consultation on access to cash is the third quarter of this year, and although the FCA is part of that process, it is worth saying that it is not the primary driver; the primary driver is the industry.

Let me come to a case that I know is close to heart of the right hon. Member for Orkney and Shetland: the failure of Midas Financial Solutions. Mr Alistair Greig perpetrated a large-scale fraud over a period of several years, lying to those who trusted him with their pensions and life savings. Those were people who had done the right thing in their lives—they had done everything right—and because of the fraud of that individual and his company, they lost out. The FCA intervened in 2014, following the receipt of intelligence related to the Midas scheme. The Financial Services Compensation Scheme was subsequently able to compensate eligible customers for a significant portion of what was lost, and Mr Greig was charged, found guilty of fraud and imprisoned.

It is imperative that the FCA continues to robustly enforce its rules and standards, not just against firms that are carrying out blatantly fraudulent activity as in the case of Midas, but to ensure that all the firms it supervises meet high standards and deliver high-quality outcomes. The FCA operates a risk-based approach, not a zero-failure regime. It is important Ministers say this: we are not in a world—nor should we aim to be in one—where it is impossible for anything to go wrong ever. What we have to do is say to the FCA, “Your job is to maintain a high standard and high quality in the market for all the firms you supervise.”