PARLIAMENTARY DEBATE
Financial Services Bill (Eleventh sitting) - 3 December 2020 (Commons/Public Bill Committees)

The Committee consisted of the following Members:

Chair(s) †Philip Davies, Dr Rupa Huq

Members† Baldwin, Harriett (West Worcestershire) (Con)
† Clarkson, Chris (Heywood and Middleton) (Con)
† Creasy, Stella (Walthamstow) (Lab/Co-op)
† Davies, Gareth (Grantham and Stamford) (Con)
Eagle, Ms Angela (Wallasey) (Lab)
† Flynn, Stephen (Aberdeen South) (SNP)
† Glen, John (Economic Secretary to the Treasury)
† Jones, Andrew (Harrogate and Knaresborough) (Con)
† McFadden, Mr Pat (Wolverhampton South East) (Lab)
† Marson, Julie (Hertford and Stortford) (Con)
† Millar, Robin (Aberconwy) (Con)
† Oppong-Asare, Abena (Erith and Thamesmead) (Lab)
† Richardson, Angela (Guildford) (Con)
† Rutley, David (Lord Commissioner of Her Majesty's Treasury)
† Smith, Jeff (Manchester, Withington) (Lab)
† Thewliss, Alison (Glasgow Central) (SNP)
† Williams, Craig (Montgomeryshire) (Con)

ClerksKevin Maddison; Nicholas Taylor, Committee Clerk

† attended the Committee


Public Bill CommitteeThursday 3 December 2020
(Morning)

[Philip Davies in the Chair]

Financial Services Bill

Those decisions will allow firms to pool and manage their risks effectively, and support clients on both sides of the channel in accessing our world-leading financial services in our highly liquid markets. I assure the Committee that we remain open and committed to continuing dialogue with the EU about its intentions on equivalence. The Government have taken all reasonable steps to co-operate throughout the process. I will keep the House updated on the UK’s approach to equivalence for the EU and the rest of the world, as I have done throughout the transition period.
New clause 28, tabled by the hon. Member for Aberdeen South, relates to assessing the impact of the provisions of the Bill under different EU exit scenarios. The financial services sector plays a crucial role in supporting the UK economy, and it is right that the impacts of the measures in the Bill are assessed and well understood. That is why the Government have published an impact assessment alongside the Bill that sets out the Treasury’s current understanding of the costs associated with each measure.
In the majority of cases, the Bill’s measures will enable changes that require further action from the Treasury in the form of secondary legislation, or from the financial services regulators in the form of regulator rules. The changes enabled through the Bill are vital to enhancing the UK’s world-leading prudential standards, promoting financial stability and maintaining the effectiveness of the financial services regulatory framework and sound capital markets. The final impact of the measures in the Bill will depend on subsequent decisions by the Government and the financial services regulators. Therefore, where appropriate, further details on the costs of each of the Bill’s measures will be explained in the impact assessments for the secondary legislation and in the cost-benefit analysis undertaken by the relevant financial services regulator in due course.
More broadly, the UK has been clear since the start of the free trade agreement negotiations that we want an agreement with the EU that reflects the maturity of our financial services relationship, and we remain committed to reaching an agreement. Although it would not be appropriate to discuss the details of our ongoing negotiations, the Government will ensure that Parliament is kept informed of the analysis at the appropriate times, in a way that does not impede our ability to strike the best deals for the UK.
New clause 36 deals with regulatory divergence in financial services. I have been clear before, as the right hon. Member for Wolverhampton South East was good enough to reference, that the UK taking control over its own rules does not mean a race to the bottom. We will continue to adopt high regulatory standards, appropriate for our markets. However, we should also recognise that regulatory regimes are not static, and international standards for financial services develop over time, and develop all the time.
Both the EU framework and our own will continue to evolve to meet the needs of markets and firms. Therefore, both the UK and EU frameworks will inevitably change over time. We can see early examples in the EU through its consultation on the alternative investment fund managers directive. Several of the changes that we are making through the Bill reflect similar changes being made by the EU to its regime. It is therefore not helpful to view all developments in regulation through the lens of divergence or alignment with the EU. It is not appropriate, having left the EU, for the UK to continually compare itself with the EU regime that was in place when we left, which will become increasingly out of date, or with the continually changing EU regime.
Where we are making changes, or will do so in the future, they will be guided by our continued commitment to the highest international standards and by what is right for the UK’s complex and highly developed markets, to support our world-class environment for doing business, ensure financial stability and protect consumers. In many areas, we already go beyond what EU rules require, and any future changes will be undertaken with consideration towards the impact of equivalence.
The Government are fully committed to ensuring accountability and scrutiny around new rules for the UK’s financial sector. That will include following the usual requirements for impact assessments related to both primary and secondary legislation, giving Members of Parliament the opportunity to consider and scrutinise Treasury decisions as part of the legislative process. Where the responsibility falls to the financial services regulators in the form of regulator rules, it is accompanied by robust accountability and scrutiny mechanisms, as I have set out to the Committee in previous sittings. The Government will ensure that Parliament is kept informed with the analysis of regulatory changes at the right times and in a way that does not impede the UK’s ability to strike the best deals with international partners. I therefore ask for the new clause to be withdrawn.

Brought up, and read the First time.

How will that be received by the sector? We heard in oral evidence that such a strategy would be welcomed by the sector, and we might even call this the TheCityUK new clause, because it has called for such a such a strategy. The new clause could link together all these things—the Bill, the future regulatory framework, the pipeline of legislation—with some of the issues that I outlined. We all want the UK to succeed in this sector and to succeed in the future. We have done this elsewhere through the Automotive Council UK, and there is every reason why we should want to do this for our world-leading financial services industry.

Of course we can point to a number of mis-selling scandals in the past 10 years or so, where products were pushed on the basis of sales commissions and margins for the organisations that sold them rather than in the interests of the customers who bought them. This is why I believe that a duty of care would be in the interests of the industry as well as the customer. If we think about the amount of money that has had to be put aside as compensation for mis-selling scandals, what we call conduct issues—in the jargon of financial services—become prudential issues. So much money has put aside that we have to think, what more could we have done with that if that mis-selling had not happened? How much more could have been lent? How much more could have been invested in the economy? We have this ongoing situation where one scandal after another forces our financial institutions to set aside money to compensate people for mis-selling scandals, instead of putting capital to work in the way they are designed for. I therefore think a duty of care is in the interests of the industry as well as customers.
Another argument in support of the duty of care is fostering means of redress. I am sure all Committee members hold constituency advice surgeries, or we did until the covid pandemic made that much more difficult. We will all have constituents who have been engaged in lengthy and exhausting battles with banks and financial services institutions. The banks have always got expensive lawyers and many layers of being able to say no. It can take incredible tenacity on the part of our constituents to get results. In some cases I have seen, the degree of tenacity is deeply unfair on the individual and can exact an enormous personal toll.
The converse argument for those who do not want a duty of care is that it might not add much, or it could stifle innovation, because people would be scared of bringing in a new product in case it led to another mis-selling scandal. However, surely the innovation that is going on adds to the argument for a duty of care. We have already mentioned cryptocurrencies and digital currencies, and we will talk about buy now, pay later schemes this afternoon. My hon. Friend the Member for Walthamstow has tabled an amendment about those. As the sector innovates, does that not reinforce the argument to have a duty of care for the consumer? Some countries have done that. In the Netherlands, such a duty applies; in the United States, new rules have been introduced to require broker dealers to act in the best interests of retail investors; in Australia, there is a duty to act in the best interests of the client, and put the client’s interests above the firm’s. Many well-regulated, well-run countries have introduced something very much like this.
In its document, the FCA made clear that a statutory new duty would require “primary legislation”, which is before us here. In a second document on this from April 2019, the FCA produced a feedback statement saying it wanted to do further work. Andrew Bailey, the FCA’s chief executive at the time, said,
That is where we are on this with the FCA.
Duties of care also exist in other fields, as the FCA pointed out in its discussion, such as tort law, negligence in contracts, duties of trustees to beneficiaries and the Consumer Rights Act 2015, so this can be done. Of course, it would have to be carefully defined. I point the Committee to the details of the new clause, because it is not prescriptive about how this should be done; it empowers the FCA to do it, giving it a six-month period in which to do so. This is work the FCA is already considering, so the new clause says the FCA should come to a conclusion on the general principle and then mandates the regulator to define that in the light of its principles and the rest of its work. It is not prescriptive.
I am sure members of the Committee will have seen the written advice that has come in in the past day or two backing up that point, which says:
The new clause would recognise the “power imbalances”—I have spoken about those a few times in the past couple of weeks—
The advice goes on to give an example of where a duty of care might kick in, namely, unsolicited increases in credit card limits. It might be that the consumer has not asked for that at all, but they get a communication from the credit card provider saying, “Great news! We have increased your credit limit,” from whatever it is to something significantly higher. The consumer might not have asked for it. It might not be in the consumer’s interest, but it might be in the credit card provider’s interest to get that person to spend more and pay more interest. That is a good example of where such a duty of care would give pause for thought for that kind of push tactic, which the consumer has not even asked for.
I stress that that is very different from a consumer going to their credit card provider and asking for an increase in their credit limit; of course, that should be available to consumers. We are not being prescriptive on personal freedom, but we are saying that this could go some way to redressing the imbalance of power and information between financial service providers and their consumers. That is why we have tabled the new clause.

If that is not a troubling outcome of what is supposed to be regulation by the FCA in defence of the consumer, I do not know what is. The FCA failed continually—at every turn—to stop consumer harm being caused by these companies’ irresponsible lending practices when it had the chance to do so. Only 4,000 customers were assisted by QuickQuid, but by 2018 it had become the company that was most complained about to the financial services ombudsman—excluding complaints about PPI matters. There were more than 10,000 complaints against it that year.
For a long time QuickQuid refused to refund interest on any loans taken more than six years before. That resulted in a huge backlog of claims with the financial ombudsman. QuickQuid made poor offers to consumers and then rejected the adjudicator’s decision. Eventually, in 2019, because of what the financial ombudsman was doing, QuickQuid accepted that it needed to pay out compensation. A similar story happened with Wonga and with BrightHouse.
There are other companies that Members will have heard of, such as Sunny, where the FCA has not intervened, but it is the same story. Opportunities to intervene early and stop the detriment to consumers were missed by the FCA, and we left it to the ombudsman. It is critical to think about the ombudsman, because, as I have said, I have tabled other amendments on matters where the ombudsman cannot be brought into play, and that is even more troubling. The ombudsman was the slow-moving organisation—the diplodocus, if we are going to carry on with the dinosaur comparison—against the velociraptor of the payday lenders, with the half-hearted triceratops at the FCA trying to protect people. I will stop with the dinosaurs. I might continue with Christmas references as we go on. My point is that when the FCA was presented with evidence of consumer harm it balked. Because it balked, the ombudsman had to step in. That is not a unique situation.
This is not just about high-cost credit. There is so much data now that shows that someone is actually better protected in this country if they take out a loan on high-cost credit through a payday loan, because of the capping—we will come to that in later new clauses—than if they take out a loan on their credit card. Millions of people in this country are in problem debt, as defined by the Minister, on their credit cards. He knows my concern about the fact that the FCA has yet again put back the idea of intervening in the credit card market, saying that what matters now is to tell people about affordability.
It is as if being tied to the train track and told when the train is coming to the station—which is what happens to our constituents when they have high levels of problem debt on their credit card and do not have the money coming in to pay it off—will make a difference and stop them borrowing, when they are borrowing, as we said on Tuesday, to pay for basic living expenses.
Yet again the FCA has balked. There is evidence, time after time, from the seven years of the FCA’s existence, that it does not have an understanding of what we mean by consumer detriment. It does not have the proactive approach to companies in relation to exploitation that we need it to have. Exploitation in the credit industry is like water. It will find a way through every loophole, just as my right hon. Friend the Member for Wolverhampton South East said on a previous new clause about debt generation lead agencies. These people find a way through because there is money to be made and there is exploitation to be offered.
We have seen that the FCA has been too slow in its approach to recognise that. As a result, consumers have not yet been protected. They have certainly felt the detriment. The new clauses are about saying, “This isn’t okay. Actually, seven years on from setting up the FCA, if we are going to give you more powers, we want to see more strength when it comes to protecting our constituents.”
New clause 15 is about the consumer protection objective. The Financial Services and Markets Act 2000 says a range of things about what consumer protection is, but it does not mention debt. If we think debt is a problem, surely we should be saying, “We want to protect you from unaffordable debt.” This is not about people never getting into debt; it is about the consequences of unaffordable debt, which we all see in our constituencies.
New clause 15 adds to the list of issues around protection the concept of
Government Members may consider it obvious that protecting people from unaffordable debt should be covered by consumer protection, but the evidence of the history of the FCA is that that has not been the case. I say to every Government Member that they may be sitting in their constituency surgeries when somebody comes in with a plastic bag full of all the correspondence they have had, and it will be clear that they have been ripped off and have got into financial difficulties. If Government Members do not want to make that a regular occurrence, they need the FCA to be on that, and we need clear guidance from Parliament.
The honest truth about the conversations that we have had with the FCA is that it looks to Parliament, and Parliament looks to the FCA, to act. The consequence is that nobody does, and we take too long. We have continual reviews and say, “Let’s give the market a bit more time to get its act in order.” It seems common sense that these companies would not exploit people, because then those people are unable to pay them back—until we understand that it is in the process of hooking people in, being their only lender of repute and being the one they owe money to that they make their money.
I do not want to be Cassandra on this. There are many new types of industry, which we will come on to this afternoon, particularly the buy now, pay later industry, where we see exactly the same patterns of exploitation—the water running through the loopholes. Fundamentally, the FCA knows of their existence too, but it is too slow to put consumer detriment and clarity about unaffordable problem debt at the heart of what it does. New clause 15 adds that in.
New clause 18 adds to section 73 of the Financial Services Act 2012 and requires the FCA to investigate when it has not acted. Surely, seven years on, we want the FCA to be a learning organisation. I found it fascinating that the FCA was robust in its defence of how it is doing brilliant things on high-cost credit. If we look at the history of the Wongas, the QuickQuids and the BrightHouses and of where action has happened, the FCA not be very proud of it. However, I am more concerned that it has no obligation to learn from when it should perhaps have intervened.
If we want the FCA to be able to protect our consumers in the future, we need to add a request that one of the things it has to consider is a failure of its own to intervene, which is what happened in the payday lending industry, what I believe is happening in the credit card industry, and what is happening in the guarantor loan industry. Members may have seen the adverts for Amigo Loans; many may have already had somebody come into a constituency surgery who is in difficulties with those loans. Again, we will come on to them this afternoon. New clause 18 adds the words
so that we can learn. Surely we never want to see the FCA miss an opportunity to protect our constituents again.
New clause 21 is about covering the costs of failure. That is critical, because right now there is a huge, horrible irony that there are people who are being chased by the creditors of Wonga who are owed money in compensation because of what happened with Wonga. Many of these companies, which made billions of pounds for their original founders, did not have the resources to cover their obligations when it was found that they were exploiting people. Again, it is self-evidently good practice that a company should be able to cover its potential liabilities. New clause 21 asks the FCA, when it is thinking about authorising a company, to ensure that it can cover any potential cost of compensation for our constituents.
Surely we have a duty to people who are owed money because of a financial ombudsman ruling, but who are also being chased for money that they borrowed that was unaffordable—that is why they are owed compensation —to put this right and to ensure that we do not authorise companies that rip people off and then leave them trying to pay double the price, without the cash that they are owed and while being chased by those companies. That is what new clause 21 does.
Finally, new clause 23 is about the ability of the FCA to impose redress schemes. Clearly the redress schemes that it imposed on the payday lending companies were deficient. Had they been effective we would not have seen all those people continuing to take out unaffordable loans after the FCA got involved with those companies, with the financial ombudsman having to step in and clean up the mess that was created. New clause 23 is about how those decisions are made, and it would require the FCA to produce the evidence.
Like Bob Peck, I have been trying to understand what has been going on—I apologise to the Government Whip for using another dinosaur reference; I will stop now. Why did this take so long? Why were people left without the money to which they were entitled? There is no clarity. The FCA does not have to publish the details of how it has managed these redress schemes, so the risk is that we cannot scrutinise how it got it so wrong in this instance and whether it is getting it wrong in other instances. The new clause would require the FCA to provide that evidence to the Treasury, so that we can understand where it has drawn the line on the redress schemes.
Taken together, this package would make the work of the FCA effective. It is not about saying that the FCA cannot do its job. Do we think, however, that it could have done things better over the past seven years? Yes, we do. Do we recognise that some of that is about the clarity of its responsibility to consumers? Yes, in which case we as the political leadership in Parliament need to give it clearer direction about the issues that it should be looking at, because when we give it extra powers, it is clear that consumer protection is not in itself strong enough on consumer detriment. Detriment is about preventing the problems in the first place, and protection is about ensuring that people have redress. It is clear that consumers have used the redress scheme in the Financial Ombudsman Service, but we would all rather that they did not have to suffer problems in the first place.
I do not want to pre-empt what the Minister is going to say. I know that he shares my concerns to make sure that we get this regulatory regime right, but I want to know whether he genuinely thinks that the way in which the FCA handled the high-cost credit industry in terms of payday loans—there are many other parts of the high-cost industry—was as effective as it could have been. When he looks at those figures with the Financial Ombudsman Service, can he really say that that was the impact he expected the FCA’s intervention to achieve? That includes the extra years in which Wonga, QuickQuid and BrightHouse continued to lend unaffordable amounts to people—and we know they were unaffordable because otherwise the Financial Ombudsman Service would not have intervened. If he is going to tell me that that is an effective form of regulation, I think we have a problem, because that means that our constituents will always play second fiddle to the industry and the small “c” conservative definition of protectionism.
Even if the Minister does not accept these new clauses, I hope he will explain how he will make sure that consumers get a better deal from the FCA, because I really do not believe that he can defend what happened with the payday lending industry. I know that he is looking at the buy now, pay later industry and the guarantor loans industry, and that he has looked at the issue of consumer credit data on credit cards. Above all, I know that in the current environment somebody will visit his constituency surgery soon—as happened to me, which is why I got involved in all this in the first place—holding letters from the Financial Ombudsman Service and red letter bills, with fear in their eyes because they are in a hole they think it is impossible to get out of, asking who can help them. The answer should have been the FCA. It was not over the past seven years, but if we get this Bill right, it can be for the next seven.

Macmillan proposed the change for several reasons. Its research suggests that only 11% of people tell their bank about a cancer diagnosis, which is really quite a tiny number considering how widespread cancer is. Macmillan suggests a number of reasons for that, but it would be much better if the banks assumed that people may be vulnerable. Macmillan further suggests that many people living with cancer and struggling with the financial impact of their diagnosis will find it difficult to seek and access support. One in three people with cancer experience a loss of income from employment following a diagnosis—£860 a month on average—which makes it more difficult for them to pay their bills or meet any other obligations, which is why this proposal is so relevant.
A patchwork of regulation is diffused across the different parts of the regulatory framework that accord with some of the key duty of care principles. Those include senior level accountability, competence of all customer-facing staff, acting in the customer’s best interests and tailoring products to individuals’ needs. Our new clauses would introduce a duty of care to consolidate and provide consistency of outcomes for consumers across authorised financial providers, because people in certain situations can easily fall through the customer protection safety net without providers having done anything wrong or broken any rules whatsoever.
As the hon. Member for Walthamstow pointed out very clearly, the current approach to regulation is reactive. Firms are sanctioned after they have failed to act in the interests of customers, and a duty of care would turn that around and ensure that the risk of harm to a customer was assessed pre-emptively and proactively. Authorised persons may also currently regard customer protection as a compliance tick box, rather than recognising that it means actively doing the right thing for consumers and anticipating that need. If people felt as though the financial institutions they deal with were taking that approach, perhaps more than that 11% would be willing to get in touch before they got into further problems.
The FCA has produced papers and guidance for businesses on treating customers fairly in practice, and it aims to provide clarity on its expectations for how businesses should respond to the needs of vulnerable customers and understand what treating customers fairly means in practice. Through that work, the FCA has found that its own regulation does not work consistently in the best interests of vulnerable customers, including people with cancer. In the 2020 “Guidance for firms on the fair treatment of vulnerable customers”—the feedback statement and second consultation on how firms should treat vulnerable customers—the FCA acknowledges that
and that
That should give us cause for concern.
The right hon. Member for Wolverhampton South East mentioned the issue of unsolicited credit card increases. StepChange also pointed out that a duty of care could affect persistent debt in the credit card market. It feels that a greater focus in regulation on appropriate product design could have prevented products from being designed in such a way that people could fall into this persistent debt. That turns the issue the other way around and looks at where the problem is just now, asking how we can prevent such things from happening and foresee the harm that people will fall into. Our new clauses and the others proposed today look at things from the other way around. We should not want people to be in harm, and we should look for ways to turn things around.
I want to say more about what a duty of care would look like. It would place a requirement, articulated in law, on firms to take a pre-emptive approach to minimising harm to consumers. That should be based on a set of key principles that firms must then adhere to, and it should contain the following: an understanding that both a failure to act and acting without due care can cause harm to people with vulnerabilities, and a need to identify customers at potential risk of harm and to anticipate, investigate and understand their needs. Perhaps businesses should look a wee bit more at what is going on with someone’s account: “Why has something changed? Why has something happened here?”
A duty of care should require firms to act in the best interests of their customers at all times and to seek to achieve the most positive possible outcomes for them. It should require a flexible and responsive approach, recognising that the customer’s situation and needs may change over time, and it should require businesses to make fair and balanced decisions based on a realistic assessment of risks. All financial service providers having a legal duty of care to people using their services would encourage and empower people with cancer or other potential vulnerabilities to contact the provider early and ask for the help they need—it would make them feel comfortable doing so. Providers would promote the support available to customers, including short-term measures to help people to manage the financial impact of their condition in periods of financial difficulty, preventing their money worries from spiralling out of control. The people that this would affect probably have enough worries to be going on with, and we want to be able to lift that burden from them.
Customers should easily be able to access forbearance from their provider, including flexibility in mortgage payments and interest freezes on credit cards and loans, without damaging their credit files. That would prevent long-term harm and exclusions. Customers would have a clearer path to compensation when things do go wrong, because a provider would have clearly failed in its duty of care. By fostering a change in culture and practice, a duty of care would ensure that providers used inclusive product and service design to anticipate and meet the needs of a changing population and customer base.
I will give a couple of examples from case studies, which Macmillan has very helpfully provided. First, it has cited the story of Chris, who said:
People have a lot of other things going on, and it is worth the financial institutions recognising all those things, seeing where people are vulnerable and stepping in—particularly now, when we face the covid-19 situation.
Macmillan also cites Angela’s situation:
That is the last thing that people should have to worry about in these circumstances, but it is clearly a worry for many people. The case study continues:
what a choice that is for people in such a situation—and it says:
The banks must know that something has gone wrong here—they are seeing changes in people’s behaviour, spending and payment patterns—but they have no obligation to do much about it. Angela’s family
Banks and other financial institutions have a duty to look at things more carefully, and to take their duty of care seriously. Organisations that support the introduction of this duty of care include the Money Charity, Fair By Design, StepChange, Age UK, the Alzheimer's Society and the Money and Pensions Service, as well as Macmillan Cancer Support.
This Bill is a portfolio Bill, as the Minister has said. In it, he has the opportunity to put something right, to address the situation and to take action to prevent people from falling into far more difficulty than they ought to.

Ordered, That further consideration be now adjourned. —(David Rutley.)
Adjourned till this day at Two o’clock.