PARLIAMENTARY DEBATE
Financial Services and Markets Bill (Tenth sitting) - 3 November 2022 (Commons/Public Bill Committees)

It is a pleasure to once again serve under your chairmanship, Mr Sharma.

The Government recognise the value that the mutual sector brings to the UK economy and have great ambition for it; we are just not quite sure that that ambition is best manifested through an additional level of annual reporting. We are committed to the health and prosperity of the mutual sector, and that is why we are taking steps to ensure that the legislative framework in which mutuals and co-operatives operate is a modern and supportive business environment. The hon. Member for Hampstead and Kilburn knows, because we debated it last Friday, that the Government are supporting a private Member’s Bill that would allow co-operatives, mutual insurers and friendly societies greater flexibility in determining for themselves the best strategy for their business and restrictions on the use of their assets, specifically in the case of demutualisation.

New clauses 7 and 8 would require the FCA and the PRA to generate a new annual report. I am not sure that would be the most decisive intervention to support the mutual sector. The Government consider that arrangements are already in place for regulatory reporting, which may give the hon. Lady some reassurance. The FCA is required to produce an annual report covering many things, including the discharge of its functions, the advancement of its objectives and its consideration of the existing regulatory principle relating to mutual societies. That report is laid before Parliament by the Treasury. Like the FCA, the PRA produces an annual report on its progress, and sets out its future plans in its annual business plan.

My hon. Friend makes an important point. Of course, my officials and colleagues in the Treasury also engage with the sector. We are alive to opportunities—perhaps not in the domain simply of annual reporting, but we are alive to practical opportunities that allow the sector to flourish.

Without disagreeing with the hon. Lady, I will say that one person’s falling behind is another person’s different model of institutions.

The Financial Services and Markets Act 2000 obliges both the PRA and the FCA to consider how their regulatory rules—their rulebook—impact on mutual societies and whether the impact would be different from that on non-mutual entities. FSMA already requires both regulators to consider the impacts of their regulation on the specific needs of mutual and co-operative financial service providers and any difference of regulatory impact on these entities compared with their non-mutual colleagues.

Given that appropriate arrangements are already in place for regulators to report, that the FCA and the PRA already produce well combed through annual reports and that there is no deficiency in the level of engagement with the sector, with the Government remaining open and alive to opportunities, my contention is that the proposed measure is simply unnecessary. While I do not disagree with the principle set out by the hon. Lady or her ambition to double the size of the sector, I respectfully ask her not to press the new clauses.

New clause 9 would require the Treasury to lay before Parliament an updated green finance strategy within three months of the Act passing. It specifies that that must include details on the UK green taxonomy and sustainable disclosure requirements. I am grateful to the hon. Member for Hampstead and Kilburn for tabling the new clause and giving us the opportunity to set out the Government’s position on those important issues.

The Government are committed to reaching net zero greenhouse gas emissions by 2025. The Bill underlines that commitment by introducing measures under which the financial regulators must consider the need to achieve compliance with the net zero emissions target as they advance their objectives.

As part of our efforts to achieve the target, the Government and the regulators have under way an ambitious programme of work, which seeks to support the competitiveness of the UK in sustainable finance. During a previous sitting, we heard the hon. Lady talk down the United Kingdom and say that we are falling behind, and she just repeated that. She lives in a world where the UK is, sadly, always falling behind and where we are never able to celebrate our successes.

I will, but let me finish this point, because the hon. Lady may want to respond to it. Following the accusation that we were falling behind Germany and France, I undertook some research. I do not know whether she is familiar with the global green finance index, which is in its 10th year, but for the third successive year, it ranked the United Kingdom—London—highest in the world for green finance. It is far above either Paris or Frankfurt. When I give way, she may want to say—I will give her this copy of the document—whether she is familiar with the index and whether it informed her comments on the subject.

I note that the hon. Lady declined to indicate her familiarity with the global green finance index, but I am very pleased to furnish her with my copy—regrettably, it is a hard copy. Of course, we can always do more, and we shall.

I give my hon. Friend that reassurance. It is imperative that the opportunities are fully seized, not just for SMEs, but for the transition economy. That is incredibly important for new nuclear, which has an important role to play. It is important that we get this right.

I will certainly give William Wright a copy of the report.

I am not as familiar with the work of William Wright as I am with the work of the respected publishers of that report, now in its 10th year. However, I will ensure that as well as supplying Mr Wright with a copy of that brilliant piece of work, I shall undertake to understand a little bit more and see what we can learn from the evidence he gave. I am happy to write to the hon. Lady with what I learn from that, because this is not a position in respect of which we have a significant difference of views, and the Government—I hasten to say—continue to make more progress.

We published the green finance strategy back in 2019, and “Greening Finance: A Roadmap to Sustainable Investing” in 2021. Since then, because of the changes to the economic and political landscape, the Government have commissioned my right hon. Friend the Member for Kingswood (Chris Skidmore) to lead a rapid review of how the Government approach delivering their net zero targets in the appropriate way. In addition, a call for evidence was launched on 11 May this year, and closed on 22 June. That consultation will inform the uptake of the green finance strategy and the Government are currently reviewing the responses they received. It is a big piece of work and the Government’s intention is to publish an update to the green finance strategy within the timelines that the hon. Member for Hampstead and Kilburn asks for in her new clause.

The hon. Member also mentioned specific policy issues relating to the green taxonomy and sustainable disclosure requirements, on which I hope I can give some reassurance. On the green taxonomy, the Government will be engaging with the market on the design of a framework to guide investors on how they can best support the transition to net zero. That includes the important role for SMEs that we heard about from my hon. Friend the Member for West Bromwich West.

Sustainability disclosure requirements are an area in which the UK is already genuinely leading the world: we are the first country to seek to mandate them. We were the first G20 country to introduce regulations for mandatory reporting, aligned with the recommendations of the task force on climate-related financial disclosures. SDR builds on that approach: the aim is for it to be a comprehensive, streamlined and co-ordinated reporting framework for all statutory and public listed bodies, and it is being taken forward at pace. As the hon. Member for Hampstead and Kilburn probably knows, the FCA launched a consultation last week on SDR rules for asset managers and asset owners, which included how to address the important, growing issue of greenwashing.

I hope I have reassured the Committee about the comprehensive amount of very thorough work being done by the Government in this domain. As I have given the assurance that the hon. Member seeks through her new clause, I ask that she withdraw it, not push it to a Division.

I welcome and recognise my hon. Friend’s interest in the topic. Free speech and freedom of expression more broadly are vital to all Members. Financial censorship is wrong. I am grateful for my hon. Friend’s contribution; the specific case of the Free Speech Union raises a wider and more complex set of questions about whether it is ever appropriate for a business to withhold a service based simply on divergent views.

Committee members will recognise that there is a legitimate question of how to raise this matter—whether it is best to do so in this piece of legislation or others. The wider issue is generally addressed in the Equality Act 2010, which specifically prohibits service providers in the UK from denying services to people on the basis of their beliefs. That is defined widely to include philosophical as well as religious beliefs.

The Government do not deny the important role that financial services—particularly payment providers, in respect of which there is a concentrated market—play in providing services that facilitate integral activities such as making and receiving payments. There is already legislation in this policy area: under the Payment Services Regulations 2017, a service could be terminated but that must be covered in the provider’s terms and conditions, and the denial of service must be communicated to an affected person in advance, with notice. My hon. Friend said that did not happen in the case she mentioned, which is a concern. We ought to understand whether that is a legislative or a compliance issue. I hope the FCA, which is responsible for the payment service regulator, will look into that.

Under the 2017 regulations, the immediate denial of a payment service can be made only when there is suspicion that a payment instrument has been used in an unauthorised or fraudulent way. We understand that that would be clearly distinguished from merely a freedom of expression concern, as in the case my hon. Friend talked about. Individuals who have a service withdrawn also have the ability to appeal to the Financial Ombudsman Service. I note that in that case, we are talking about a business or an organisation rather than an individual. It would be worth giving further consideration to how the proposed new clause interacts with the existing regulatory regime and whether the current regime is insufficient.

I commend my hon. Friend for bringing forward such a well-developed clause, but it is right that the Government look in detail at how it would operate in practice and whether it would achieve the aims that she intends. The Government are due to review the 2017 regulations in January 2023. If we reflect on the concerns over the issue, a sensible course of action would be to include in the review’s call for evidence questions about the adequacy of the existing protections in respect of payment services. I am happy to confirm that it is therefore my intention to explore this issue as part of that statutory review in January 2023.

I note that the new clause raises questions about the role and powers that the FCA should be given in adjudicating over any such regime. On that particular point, I am not sure how the FCA has the expertise, as a financial regulator, to adjudicate over matters of freedom of expression, which the new clause in its current form would require. They seem to be quite different matters, and they are not simple.

Beyond that particular case, we do not have a wide body of evidence about the adequacy of the existing regulatory regime that governs payment services. That is not to take away anything from that case, which in itself provokes deep concern, but it is not clear how prevalent or widespread the issue is. It may be that Opposition Members have examples as well—one can easily imagine a group of activists or a trade union being affected by a similar measure. I can see that there may be other instances and other areas of concern.

My hon. Friend has raised an important issue, which the Government will take very seriously. I hope I have been able to reassure her of how significant the Government think this matter is, and I am thankful to her for her continued dialogue. Given that I have committed to meet her and to continue to explore whether the new clause has the right form of words and is in the right place, I ask her to withdraw it for now and not put it to a vote. We will continue the dialogue and potentially revisit the issue at a later stage.

I will be brief in responding. The hon. Members for Glenrothes and for West Dunbartonshire raised an important issue, and I hear echoes of it from hon. Members who have often been involved in helping their constituents to seek redress. I will choose my words carefully, because I have done only some preliminary examination of how immunity does and does not work. How the common law—the rights of appeal and the establishment of negligence—could be applied to the FCA is something that I am happy to go away and consider and to take advice on. Right now, if hon. Members will forgive me, I will choose my words carefully and say that there may be something here. We have looked a number of times at the different interlocking roles of Parliament and regulators in the Bill. The new clause would introduce a third axis, which is the power of the law of negligence.

I do not know whether the hon. Member for West Dunbartonshire wishes to put the new clause to a vote, but I would ask him to desist from doing so. However, I reassure him that he has planted the seed of the thought that I believe he was hoping to with the new clause. I will take it away to see whether it is worthy of consideration and whether there is a practical way of achieving it, and of course listen to the views of the FCA about how it thinks this would modify its conduct and behaviour and the position of consumers, which is ultimately what the regulatory regime seeks to address.

I thank my hon. Friend the Member for North Warwickshire for bringing those matters to our attention. I do not quite accept his construction, but in his view he is seeking to make a good Bill excellent. That is our aspiration. I should add that, although he used the example of Bermuda, I do not wish for the UK regulatory environment to ape that of Bermuda: I want us to be the very best version of ourselves. I would be very happy to accompany my hon. Friend on a fact-finding trip to understand in great detail the financial regulations in Bermuda. It is a task that would take some weeks, I am sure, as we sought to achieve our purpose, which is to have transparency about how the regulatory regime operates and to work together with the regulators to set the right measures of that performance.

As my hon. Friend the Member for Wimbledon said, the regulators should not mark their own homework—that should fall to Parliament. He was very gracious about his provisions, which we will be considering, but also the provisions tabled by my hon. Friend the Member for North Warwickshire.

As there is still work to be done, I ask that my hon. Friend the Member for North Warwickshire does not press the new clause to a Division. Is he willing to work with my team and I to see if we are able to perfect the objectives he seeks, which are wholly laudable and understood by the Government?

Let me start by thanking my hon. Friend the Member for North Warwickshire for raising the important issue of regulatory proportionality in financial services—something that I think is relatively uncontentious in principle, but which is clearly important in practice. We heard from my hon. Friends the Members for North Warwickshire and for Wimbledon. Indeed, we have heard in the course of this sitting from a number of Government Members with practitioner experience and they have kept coming back to this sort of example, whether it involves cost-benefit analysis, the composition of practitioner panels, or proportionality, which I hope is a widely agreed principle.

There are a number of initiatives, which my hon. Friend the Member for North Warwickshire will be aware of, in respect of proportionality: the embedded regulatory principle as it stands today, as well as guidance and initiatives such as the financial services regulatory initiatives grid and forum—I am sure that my hon. Friend is deeply familiar with its work. There are a number of initiatives designed to elevate work in this space. As I said, my hon. Friend raises an important point. It is another point that I would like to go through when I meet him and my hon. Friend the Member for Wimbledon and look at it as an interlocking set of initiatives around the proportionality of reporting transparency to ensure that we get the balance right. If there is an opportunity to improve that, we will seek to take it. As this is the last clause of the Committee, perhaps my hon. Friend would be so kind as to not press it to a vote, given the undertakings that I have given.

I would like to thank you, Mr Sharma, for your adroit chairing of the Committee and for ensuring that we completed the necessary clauses on time and in the correct order. We have heard some lovely vignettes delivered passionately by the hon. Member for Mitcham and Morden about the lack of cash for her constituency and some of the actions to remedy that, on which I hope to join her. I thank the hon. Member for Blaydon for her co-operation with my colleague, and the hon. Member for West Dunbartonshire, who— often flying solo—so diligently represented his standpoint. I thank the hon. Member for Hampstead and Kilburn, who demonstrated great prowess when predicting the points that I may or may not make. I hope that there is more that we agree on in the Bill than we disagree on. Finally, I thank my officials, who have supported my work and the work of this Committee during the past few weeks.