‘Complaints by small businesses
European Union Documents
5:03 pm

Christopher Leslie (Nottingham East, Labour)

This important Bill took a considerable amount of time in Committee, but it was still insufficient to cover many of the amendments that will be necessary to ensure that it is fit for purpose and able to fulfil the job for which it was designed. The Opposition believe that the Bill can still be improved, so many of the proposals we did not reach in Committee or that were not addressed on day 1 on Report are in today’s amendment paper.

This long group of amendments under the generic title, “Stewardship, etc.” covers a few issues, so I would be grateful, Madam Deputy Speaker, if you would bear with me while I touch on the details. Although amendments 75 and 74 relate to stewardship, other amendments are on different topics, which I should also like to address under this group.

On amendments 75 and 74, it is important to take the opportunity to ensure that the Bill properly improves institutional investors’ stewardship of pension funds or other savings or investments. Such funds are looked after by others on our behalf. In an ideal world, those who have pensions or other savings would spend time considering where they are invested, and whether they are invested ethically or in sustainable organisations and so forth. For reasons of practicality, however, that is often impossible, and investments are often grouped together in a basket of different products, so following the detail of where funds are invested is incredibly difficult.

That is why many people choose to use institutional investors—to ensure their best interests are being served. That means ensuring a good and strong rate of return, but many people care about where their money is invested. Most of British industry is partly owned by the collective pension funds of our constituents. They have voting rights through the shares and equity they hold, but they are often exercised without reference to our constituents and delegated to institutional investors to make decisions on their behalf.

The previous Administration and this one have therefore sought to address the quality of stewardship by institutional investors. Amendment 75 is on the threshold tests in the Bill and the Financial Services and Markets Act 2000 on whether people are suitable or fit and proper, whether they have adequate resources to fulfil their responsibilities, whether they have close links with others in the sector, and so on. The Opposition felt it would be a good idea to ask Ministers to consider whether the array of reforms that should be made to corporate stewardship should be reconsidered in the light of those threshold tests.

Amendment 74 also looks to the 2000 Act and the general rules of conduct of approved persons and seeks to amend the Bill so that it addresses key aspects of the

good stewardship agenda. We argued in Committee and earlier that the Bill is a missed opportunity radically to improve the stewardship of some of the key players in corporate Britain, especially those large firms—banks and institutional investors—that have such a direct impact on society at large.

The stewardship code was brought into force in 2010. We have had reasonable progress, with around 230 asset managers, asset owners and service providers signing up in the first 18 months, but sadly, the Bill does not reference the Financial Reporting Council, which is the UK’s independent regulator responsible for promoting, among other things, high-quality corporate governance. We want the Bill to do more to give regulators a proper and clear mandate to strengthen the stewardship code where appropriate and give them sufficient teeth to ensure that significant culture changes can happen. These things do matter. We have to build a framework that roots out bad habits and addresses what some people have called the principal agent dynamic—the fact that shareholders are often very fragmented and, when faced with unified managers, are often unable to make any headway. Senior executives can sometimes respond only if there is a 50% plus one coalition of shareholders.

We need to rekindle that dynamic. Some have said that it is time for a shareholder spring or awakening, and there have been some suggestions recently that certain company shareholders, at the annual general meetings and elsewhere, have begun to ask fundamental questions of the senior executives. It is the mismatch between the power that senior executives can have and the lack of power of—paradoxically—the owners of some of these large companies that needs addressing. In legislative terms, we often have debates about firm rules and fixed ways of doing business. Obviously, it would be preferable if the dynamic between owners and managers were able to ensure that we had a healthier, more open and transparent way of doing business.

I commend those institutional investors who show an active interest in how they use the voting rights of their investors and use that leverage to try and influence positive corporate behaviour by the relevant companies. It must be tempting for many institutional investors, when faced with a company perhaps with a management dysfunction or some behavioural failing, to sell up and walk away from that company. That is too often the history of such shareholding. It would often be far better if shareholders, as owners, could stay and try to fix the culture of the organisations that they own. It is that sort of change that we need to find a way of addressing. Yes, some shareholders will not want to say publicly that they disagree with senior executives, because that could affect the share price and they would therefore be affecting their own financial interests in some ways, but there are several ways in which institutional investors need to have the ability, directly or indirectly, to influence what is going on.

Protests in recent months have, in some cases, seen the rejection of some of the larger pay deals in big companies—for instance, the executive remuneration packages at Trinity Mirror, Pendragon and Aviva. The banking sector has also seen some significant shareholder disquiet, including at Citigroup with the rejection of the

chief executive’s pay package. Nearly a third of Barclays shareholders voted against the pay policies in that particular company.

So there have been some signs that shareholders are becoming interested in that more active role. This is perhaps to commend the work of the Association of British Insurers, which has done good work recently in encouraging its members to take a more active role. Those members account for some 15% of the stock market, and they recently wrote an unprecedented letter to the chief executives of some of the major banks in particular, saying that they were not happy and would no longer tolerate a “business as usual” approach when it came to remuneration, especially for executive directors.

Those moves are very positive, but we should not feel that the balance between shareholders and executives is sufficient. The persistent imbalance needs addressing in a number of specific ways. For a start, a shadow is often cast across the Atlantic as many institutional investors feel that what are known as the “acting in concert” rules affect them here. To what extent can institutional investors come together and discuss with each other their ability to voice common concerns about the behaviour of managers? I have sometimes heard concerns expressed that this may somehow be in conflict with anti-trust regulations. If the Government could clarify the “acting in concert” rules, it would help to send a clear signal to institutional investors that it is possible to have those discussions, to come together to form a significant majority and to express a view about corporate behaviour.

As I said, some progress has been made recently on the stewardship code, but the results of some surveys remain slightly depressing. In March, a business bellwether survey conducted jointly by the Financial Times and the Institute of Chartered Secretaries and Administrators canvassed the views of company secretaries from the FTSE 350. It found that 79% of FTSE 350 firms reported that the stewardship code had led to no difference in meaningful engagement, with only 21% reporting a slight difference. Only one in 10 firms had actually met their top 10 shareholders in the past 12 months.

The culture, then, is not changing radically enough. That is particularly clear with the bonus culture. On numerous occasions, we have debated bank bonuses and the fact that the culture there has not changed sufficiently. We still receive correspondence from many constituents totally aghast at the scale of some awards paid in the industry. The Department for Business, Innovation and Skills has reported on its efforts to curb excessive pay deals and talked, primarily, about the need for a binding shareholder vote on annual remuneration policy. That is welcome, of course, but insufficient, especially if the binding vote on future remuneration policy does not have enough teeth. It has been suggested by many, including some in the asset management industry—Fidelity Worldwide Investment, for instance—that a 75% super-majority might still be necessary. That would make companies consult shareholders far more widely prior to the vote and would maximise shareholder engagement.

There is a series of other reforms on the stewardship agenda, however, that the Minister needs to consider and encourage the regulators to consider. For example, there is a strong case for simplifying and clarifying how

executive pay is composed. Just finding out what exactly is being paid in remuneration packages is sometimes itself a high science. A case can be made for a basic salary element to be supplemented with one additional performance-related element to help to ensure that shareholders can clearly comprehend the absolute levels of executive pay. We need greater transparency so that shareholders can understand what is being paid to managers.

It would be helpful if the reporting of pay packages was more standardised across a range of businesses and included single figures showing total remuneration. The Opposition believe that to increase transparency, shareholders should also be able to see awards that go beyond the boardroom, particularly in the banking sector. We have said that figures for the 10 highest-paid employees outside the boardroom need to be published, again so that shareholders can know what is happening. Let us bear it in mind that these things are not simply a matter of natural justice; they significantly affect the behaviour of those senior executives and the risks they take. If remuneration practices continue to reward excessive risk taking, linked to the exuberant activities that resulted in some of the more dangerous aspects of investments that took place ahead of the global financial crisis, it could ultimately lead to a significant liability for the taxpayer. This is relevant if we are to learn the lessons of the financial crisis.

There is also a case for ensuring that employees have a greater stake in what is happening within the companies in which they work. The proposal—put forward I think by the High Pay Commission—to publish the ratios of the pay of the highest-paid employees to that of the median would be a good way of ensuring a better sense of how a company was bringing all its stakeholders along in its business plan.

One of the key issues that still requires action is something basic: the mandatory disclosure of voting patterns by institutional investors. Many institutional investors are beginning to disclose their voting practices. That is a good thing, but in this day and age, that needs to be a basic, minimum requirement. A number of organisations, including FairPensions and others, have been pressing for the change, and the time for action has come. Not only would the mandatory disclosure of the voting patterns of institutional investors help to inform the owners of stock—the investors in companies—of what was being done in their name; it would also promote competition and choice, so that consumers could judge where their investments might best be placed to match their views, whether ethical or environmental.

My hon. Friend Lisa Nandy has an amendment in this group, and she will no doubt talk to it in a moment. It is of course important to ensure that regulators and the sector pay greater care and attention to ethical, human rights and sustainability questions. However, I also want the general public—pensioners, and other savers and investors—to have the information about what is being done in their name with their investments. That is why the mandatory disclosure of voting patterns is so important. The Minister therefore needs to trigger the powers in the Companies Act 2006, which are ready to go, so that they are brought into force and the stewardship agenda is promoted, and to do so as soon as possible.

However, one of the most important reforms to stewardship must be the reform of remuneration committees in large corporations, in particular those in the financial services sector. I hope that amendment 38, standing in my name, will gain some traction with the Minister. Although we debated the matter in Committee, he must surely be persuaded by now of the virtues of ensuring an opportunity to appoint an employee representative as a member of a remuneration committee, and also that remuneration consultants—the specialists tasked with advising on the appropriate, going rate of pay for senior executives—should be appointed independently by the shareholders, not by the managers, who have a vested interest in the outcome of any review. Again, this is a pretty basic corporate governance reform, so I hope that the Government will accept the merits of it.

I cannot stress enough the importance of ensuring that employees have a better voice in addressing some of these questions. There is an incredible propensity for loss of morale in some of the big companies in this country if the employees feel totally disconnected from the continuous high pay, remuneration and bonus culture that they sometimes see in their own companies. When we have debated the issue in the past, the Minister has said, “We can’t possibly put an employee on a remuneration committee because that would involve a conflict of interest”—that is, because the employee would somehow be voting on their own pay and conditions. There are ample ways of dealing with conflicts of interest; the key thing is that the employee should have a voice to express a view about the ratios of the highest-paid to the typically-paid in a company, to ensure that we do not just have managers commenting on management pay, but that others can comment too. That would lead to a healthy dynamic on remuneration committees, and it is something that already happens in many of our European neighbour industries. We know that John Lewis and other UK companies already follow many of these best practices; I think the time has come for such arrangements to be broadened out.

It is also important to make sure that we move on from the perception that the remuneration consultants who are hired constantly make recommendations that please the highly paid management in some of these large banks and large corporations. Consultants will, like a sunflower, always face the sunlight and if they feel that their appointment will come by saying the things that please the people making the appointment, they will continue to say those things. There are some great consultants out there, and I do not, in any way, wish to denigrate their integrity, but, generally speaking, the culture can give rise to a perception that something is not quite right in how recommendations are made. So to ensure that those recommendations and the consultants’ behaviour are beyond reproach, it is important that we place this power more firmly and clearly in the hands of shareholders. That deals with amendment 38, and those are the points on the stewardship agenda that I hope the Minister will address.

Amendment 73 deals with a slightly different topic, as it seeks to amend clause 40. It has largely come about because of recent reports that small and medium-sized enterprises in the UK may have been mis-sold products by some of their bankers. In particular, some SMEs that might have taken out loan agreements were also told that they needed to take out an interest rate swap

product—a hedge or an insurance against interest rates going too high—and therefore made such arrangements. Increasing concerns are coming to light about the way in which that practice occurred, with serious questions being asked of the commercial banks. This is obviously not of the scale of what happened with personal protection insurance, because that involved many millions of individual consumers being mis-sold a product. We are still in the early stages of finding out just what has happened, so this amendment seeks to bring forward powers giving small firms an ability to complain and to bring proceedings —court proceedings if necessary—to ensure that they could get proper adjudication on whether they were indeed mis-sold a particular product.

The amendment would do two specific things. First, it would require the Government to introduce proposals within three months of Royal Assent of this Bill to make it easier for groups of small firms to bring collective proceedings—class action suits, as they are often called—before the courts in respect of financial services claims, with the right to opt out for those companies not wanting to be party to the outcome of those cases.

I have written to the Minister on these points. Several years ago, he debated this issue when it came up during proceedings on the Financial Services Bill in 2009-10. He was then in a shadow role and he argued that the provisions could not go ahead because sufficient consultation had not taken place—the then Government undertook that consultation, partly at his behest. He has now been in office for a couple of years and we have another Financial Services Bill before us, yet still there is nothing in legislation on this.

In correspondence, the Minister tells me that

“legislating for collective proceedings through the Financial Services Bill would neither allow for the appropriate degree of consultation or take advantage of the opportunity to learn from the responses to the BIS consultation on private actions in competition law.”

All our amendment seeks to do is ask the Government to bring forward proposals within three months of Royal Assent. That would surely give ample time for proposals to be formed and for consultations to take place. If the Government cannot legislate now to help small businesses to ensure that, if necessary, they are able to undergo those collective proceedings to get justice in their cases, I do not know when a better time would be. The Minister needs to give us a little more information about the time scales he has in mind and the legislative vehicles he feels might be more appropriate than this Bill. The amendment would also empower SMEs to complain to the regulators, going beyond the collective proceedings in a court, and to give representative bodies the right to complain about market failures—in this case, to the Financial Conduct Authority—in the same way that consumers can complain.

SMEs are consumers, just as individuals are; and just as individuals can be victims of mis-selling, so can small businesses. There will from time to time be vexatious or malicious complaints about particular products, but they can be dismissed by the regulator. The Minister has helpfully tabled an amendment to clarify that a small firm—it might be an independent financial adviser or an approved person—should not be deemed as a consumer when making a super-complaint. That is a perfectly good amendment, but we need to recognise

that there is a gap in the legislation when it comes to small firms wanting to make complaints in their role as consumers of financial products.

Stewart Hosie (Dundee East, Scottish National Party)

Is the hon. Gentleman concerned that, if the amendment is passed, financial institutions might stop providing the hedge products against interest rate changes or forex changes that SMEs might need and from which they might benefit? Is there not a slight risk of those products no longer being available, adding to the risk for SMEs over a period of time during which interest rates and foreign exchange rates might change?

Christopher Leslie (Nottingham East, Labour)

I am grateful to the hon. Gentleman, but no, I do not think that is a risk. Amendment 73 does not propose to outlaw interest rate swap products; indeed, it is not specifically related to those particular products. It is really about the powers of small firms to complain and to take proceedings if they feel that they have been mis-sold a particular product.

On the particular issue in the news about interest-rate swap products, there are some serious questions that the Financial Services Authority and the Minister need to answer. Were those interest-rate hedge products a requirement of loan agreements, or were they optional? Were the minimum and maximum parameters fair and balanced, or was the downside risk always likely to hit the consumer more than the banks? How frequently was there a mismatch between the term of the loan agreement and the term of the hedge product obligation? Sometimes the term of the hedge product obligation continued even though the loan term had concluded. Were there asymmetrical rights to cancel? In other words, could the banks cancel the arrangement for a particular product, with which the consumer or small firm had to continue? Those are some of the key questions.

David Mowat (Warrington South, Conservative)

The hon. Gentleman is right to raise this serious issue. What I do not understand in his amendment, however, is what additional powers it would effectively give to a small business, given that the Financial Services Authority can already investigate all these things. Am I missing something?

Christopher Leslie (Nottingham East, Labour)

When it comes to complaints procedures, particularly about market failure, which the Financial Conduct Authority can look at, there is a trigger that small firms could have, but it is not available in the Bill. Just as the Minister has given super-complaint powers to a certain number of consumer bodies, so a case can be made for doing a similar thing for representative bodies of small firms. I am not claiming that the amendment is drafted to the perfection that the Minister’s officials might want, but I hope he gets the gist—that there is a gap here. Small firms might have written to him, expressing the fact that they feel that they have no power. I have certainly had some of them writing to me to say that they feel intimidated about complaining—to the regulator or to their bank—because of the sheer power that the bank has to withdraw lines of credit if it feels that the boat is being rocked.

There is an important underlying issue here, which the business community wants addressed. To what extent were small firms told to seek independent advice before signing up to the swap contracts? How widespread was

the take-up of these particular agreements? I know that the Financial Services Authority is beginning to look at these questions, but I want to see more action and a swifter response from both the Government and the regulator.

David Mowat (Warrington South, Conservative)

Many of us want to see more action, but what I do not understand is the extent to which the hon. Gentleman believes that the FSA does not have the powers to investigate mis-selling of this type. If mis-selling has occurred—the hon. Gentleman provided some good examples of unfair and asymmetric contracts—surely the FSA is already able to investigate it.

Christopher Leslie (Nottingham East, Labour)

Indeed it can, but it is the way of triggering an FSA investigation that is the case in point. The FSA can choose not to listen to the voices of dozens or hundreds of small businesses, not necessarily in regard to this product but in regard to other products in the future. It is a question of giving some power to small firms, as consumers, to trigger an investigation by the regulator. This is not just a pro-consumer amendment; it is a pro-business amendment, as I hope can be agreed on all sides.

I have spoken about the amendments tabled in my name; there are others on the list. I shall be interested to hear what the Minister has to say.

John Hemming (Birmingham, Yardley, Liberal Democrat)

Let me begin by referring Members to my entry in the Register of Members’ Financial Interests. I think that I should declare registrable holdings in RBS and Lloyds as regulated entities. I have just checked my entry in the register, and note that I have a declarable interest in Highway Capital. It is a stock exchange rather than a parliamentary interest, but I think that it should be declared because it is relevant to the debate. I also founded, and still chair, John Hemming and Company LLP, which supplies software to the financial services sector. Although it is not itself regulated by the FSA, it trades with FSA-regulated entities, so I think that interest should be declared as well.

My hon. Friend Lorely Burt sadly cannot be here today, although she attended 16 of the Committee’s sittings. She has, however, passed me certain comments that she has received from interested parties, which she wishes me to raise with the Minister.

Payday lending has been a substantial issue throughout the debate. My personal view is that it is not a good thing, because it traps people in many circumstances. The question of what is the best way of dealing with it is a complex one, and I think that the Government are entirely right to ask the University of Bristol to investigate it. However, I have spoken to companies in my constituency and have said that I do not think that it is a very good thing.

In Committee, my hon. Friend the Member for Solihull said that the Bill should explicitly encourage the Financial Conduct Authority to seek to maintain and extend consumers’ access to financial services that meet their needs, and that when making regulatory decisions, it should assess their impact on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products, and also on financial advice. In the absence of such a requirement, there would be a risk of

the FCA always being steered towards a risk-averse regulation. Markets might be restricted to large groups of consumers to avoid any consumer getting sub-optimal products.

The Government seek to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case with the last Government’s stakeholder products initiative. Does the Minister agree that the FCA now has the “teeth” to engage with the industry and engage in issues such as the maximum number of rollovers that a payday lender should be permitted to allow? Could the FCA set a threshold for market entry? Could it impose on companies real penalties that hurt, rather than the £50,000 limit imposed on the Office of Fair Trading, and make lenders pay compensation to consumers who have suffered detriment?

Let me now turn to the reflections of industry practitioners. The smallest businesses are keen to ensure that the cost of the regulation to them is not disproportionate. Forty per cent. of credit licence holders are sole traders. What cost-benefit analysis has been carried out for the smallest practitioners?

What about the implementation time? The Finance and Leasing Association has observed that the less far-reaching Consumer Credit Act took four years to implement. It estimates that implementation of this legislation would take between five and seven years. I am sure that the Government will work with all the professional bodies in devising a sensible implementation plan, but I should be grateful for any reassurance the Minister can give.

The Association of Independent Financial Advisers is fearful about the lack of a limit on time for complaints, which it says will place a burden on provisions that it will need to make to cover this open-ended provision—

Dawn Primarolo (Deputy Speaker; Bristol South, Labour)

Order. The hon. Gentleman is speaking quite quickly, but I am trying to follow what he is saying. Will he explain how it is relevant to the amendments that we are discussing?

John Hemming (Birmingham, Yardley, Liberal Democrat)

It is not.

Dawn Primarolo (Deputy Speaker; Bristol South, Labour)

In that case, it is out of order. Perhaps we should move on, unless the hon. Gentleman is going to speak in order.

John Hemming (Birmingham, Yardley, Liberal Democrat)

rose—

Dawn Primarolo (Deputy Speaker; Bristol South, Labour)

Order. I should like the hon. Gentleman to do it now. Otherwise I am going to sit him down straight away, given that he knows that he was out of order. Presumably that is why he was speaking so fast. I ask him to speak directly about the amendments.

John Hemming (Birmingham, Yardley, Liberal Democrat)

The Opposition have raised interesting questions about the issues of shareholder activism and the interrelationship between shareholder activists and companies, and I would be interested to hear what the Government have to say in response.

Dawn Primarolo (Deputy Speaker; Bristol South, Labour)

Splendid; thank you. I call Lisa Nandy.

Lisa Nandy (Wigan, Labour)

After that exchange, I rise to speak to amendment 45, which stands in my name and that of other Members, with some trepidation. I shall try to keep to the point.

The amendment places a duty on the Financial Conduct Authority, in its role as the UK listing authority, to require all applicants to the stock exchange to report on the human rights and sustainable development impacts of their operations. The Minister has said that the FCA needs to be a single-minded regulator. The amendment would not distract the FCA from its strategic objective, but would serve to uphold the integrity of the market and the London Stock Exchange in the fullest sense of that term. As Jesse Norman has said, we must uphold honour and morality in the markets, but we must also maintain Britain’s international competitiveness. The amendment will achieve both objectives.

Conveniently, the amendment is also in line with the Government’s policy commitments. In June last year, the UK, along with every other member of the United Nations Human Rights Council, endorsed the UN framework on human rights and transnational corporations, which for the first time provides a framework for business and human rights. It was an historic agreement, and the Government are very supportive of it. The Foreign and Commonwealth Office has been particularly enthusiastic in its support for its principles, but so far the Government have not spelled out how they intend to fulfil them. Listing requirements specifically relating to human rights and sustainable development will be a very strong first step. As some Members may be aware, the LSE is currently host to a number of companies that have been found guilty of gross violations of human rights, particularly in countries that are in conflict or deemed high risk, yet very few companies have been held properly to account for such actions.

Last June, Richard Lambert, former director general of the CBI, wrote an opinion piece for the Financial Times. He said:

“It never occurred to those of us who helped launch the FTSE 100 index 27 years ago that one day it would be providing a cloak of respectability and lots of passive investors for companies that challenge the canons of corporate governance such as Vedanta…Perhaps it is time for those responsible for the index to rethink its purpose.”

Our amendment would clarify rather than rethink the purpose of the stock exchange, allowing the FCA to take into account an applicant’s respect for human rights and sustainable development, in protecting the integrity and respectability of the exchange. That has been done elsewhere, such as in Hong Kong, and Istanbul, Brazil, Indonesia, Shanghai, Egypt, Korea and South Africa have all taken steps in that direction.

Such regulation would not be burdensome on applicants. Publicly listed companies already report on their social and environmental impacts as part of the requirements under the Companies Act 2006. This amendment would simply make explicit the requirement to include human rights and sustainable development in their reports and demonstrate to applicants that the Government do not tolerate or accept failure to respect human rights.

Apart from the moral argument, there is a strong business case for such requirements. There is increasing recognition that environmental and social factors can have a material impact on business returns and a wider

impact on reputation. The gulf of Mexico oil spill—which forced BP to cancel its dividend for the first time since the second world war and to report its first annual loss in 19 years—should have removed any doubt that environmental and social issues can be vital to company success.

One of the virtues of London’s financial services sector is its sustainability, security and stability, yet we are falling behind other countries in our commitment to sustainability. The Bill provides a great opportunity for Ministers to get on the front foot in respect of this agenda. The FCA’s purpose is to uphold the integrity of the markets. I ask Ministers to consider that term in its fullest sense in respect of companies’ environmental and social impacts.

This is a probing amendment, so I shall not press it to a Division, but I will listen very carefully to the Minister’s response.

John McDonnell (Hayes and Harlington, Labour)

I apologise, Madam Deputy Speaker, for coming and going from the Chamber during the debate; I have been chairing another meeting.

I congratulate my hon. Friend Lisa Nandy on the way in which she has promoted the debate on the issue and on her amendment. She has approached the matter articulately and with considerable compassion. She has demonstrated that ability to the House on a number of issues, and I congratulate her on her promotion to the Labour Front Bench.

I was the Member who assisted in the launch in the House six weeks ago of the report, “UK-listed Mining Companies and the Case for Stricter Oversight”. The report was produced by the London Mining Network and supported by Amnesty International and a range of other organisations. It brought together examples of the operation of companies in the mining sector listed on the London stock exchange and the role that they played in the abuse of human rights, the environmental degradation of vast tracts of countries within the developing world and the overriding of the cultural values of local people.

The various organisations that came together to launch the report included human rights groups and environmental groups, as well as a number of community and religious groups, and they are looking to the Government for some movement on that issue. As my hon. Friend the Member for Wigan argued, those human rights, environmental and cultural abuses should not take place in the name of British companies listed on the British stock exchange. Any effort the Government can make to give this country’s financial authorities the powers to exert some influence on the operation of such companies is critical. As my hon. Friend has said, such actions are causing such long-term reputational damage not just to the individual companies but to the British financial system that they will eventually rebound on us. The matter needs to be addressed, and it needs to be addressed now.

When we launched the report, I was moved when I met the groups campaigning on the issue in Peru. I want to give this example not to delay the House but to demonstrate the significance of the amendment and the debate, as well as to suggest a possible route through for

the Government. This example has gone unchecked by the financial authorities in this country. In 2005, Minera Majaz, a wholly owned subsidiary of the British company Monterrico Metals, was working hard in the northern highlands of Piura in Peru to get its social licence and start the operation of its first copper project. The concerns held by local people about possible environmental degradation as a result of such mining led 1,000 people to march on 1 August 2005 to protest against the mine. They were met by hired thugs who beat a large number of them up; 29 people were held within the mining camp, where they were tortured, and one person was killed. That was done in the name of a mining company that is listed in this country and is therefore considered to be a British company. A number of the women who were detained were sexually abused by the thugs with whom the company had armed itself. There have been some prosecutions and, thanks to the activities of Leigh Day and Co. Solicitors, the human rights lawyers, there has been some compensation. The case was exposed within the British media, too.

The operation of that company has damaged the reputation of this country in Peru in the long term, so the Government must be seen to act to put in place a regulatory system to prevent that from happening again. The least we can do is take on board the amendment tabled by my hon. Friend the Member for Wigan, which states that one factor to consider when overseeing the operation of a company listed in this country is its “ethical corporate behaviour”. In fact, the UN recently suggested that that was the role of member states, which should put place the necessary legislation and structures. My hon. Friend’s amendment is in line not only with the best interests of human rights and environmental sustainability but with the international obligations being placed on us and preserving the long-term reputation and viability of our financial services industry.

Steven Baker (Wycombe, Conservative)

The hon. Gentleman makes a compelling case, but are not directors already responsible under the Companies Act 2006 for many of the matters he raises? Would it not be more expedient to pursue directors?

John McDonnell (Hayes and Harlington, Labour)

I understand where the hon. Gentleman is coming from but we have tried that and it has not worked. We sought under the recent Companies Act to increase the responsibilities on directors, but unfortunately we were unsuccessful. The evidence that came to the London Mining Network report, which I shall send to the hon. Gentleman, clearly shows that the existing system is not working, and this Bill provides an opportunity to enhance the powers of the regulatory authorities in this country.

My hon. Friend the Member for Wigan will not push the amendment to a vote. I understand why, although I am a bit more proactive on these matters. May I suggest to the Minister that the Government usefully look at the report and bring together the relevant representatives, including the existing authorities and the new individuals who will sit on the various authorities when the Bill has gone through, to discuss where we go from here? How do we ensure that we have an effective mechanism that includes the monitoring of corporate ethical behaviour within companies that are listed in this country and that gain all the advantages from that,

such as reputational advantage, but that are doing our country a disservice through their operations in the developing world?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

I am grateful for the opportunity to reply to this debate. The hon. Members for Wigan (Lisa Nandy) and for Hayes and Harlington (John McDonnell) have raised some very important issues and there is a lot of truth in what they say. The reputation of the UK listing regime depends partly on the behaviour of companies, and we need to think about that quite carefully. However, there are other forums in which these issues should be explored—I do not believe that the Financial Services Bill is the place for it. In the regulatory reforms we have brought forward, we have tried to be very clear about the responsibilities and focus of the new regulators, the Financial Conduct Authority, the Prudential Regulation Authority, and the macro-prudential body the Financial Policy Committee.

Matters of stewardship and corporate behaviour are predominantly the responsibility of the Financial Reporting Council, which is responsible for the stewardship code and corporate governance issues. I encourage both hon. Members to engage with the FRC on this issue. Of course, it is not only the FRC that is relevant. The hon. Member for Hayes and Harlington talked about the mining sector, and the Government are engaged in that debate. We are a strong supporter of transparency in the extractive sector and we are pressing for requirements to be placed on EU extractive companies to disclose the payments they make to Governments. That is flowing from the accounting and transparency directives. We are also very supportive of the extractive industries transparency initiative, under which companies publish the payments they make to companies in resource-rich countries, so we are aware of the need to increase transparency.

Lisa Nandy (Wigan, Labour)

I am grateful to the Minister for giving way, but I urge him to speak to his colleagues, particularly in the Foreign and Commonwealth Office, because this amendment is supported by a wide range of organisations. They include investors and members of the business community, as well as non-governmental organisations that represent those whose lives have been so appallingly blighted by some of the companies that my hon. Friend John McDonnell and I have been discussing.

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

The hon. Lady makes a good point, and if my colleagues in the Foreign and Commonwealth Office are not reading this debate carefully I shall certainly raise the matter with them and ensure that they think carefully about their role. I encourage her to speak to the FRC about these issues.

Andrew Love (Edmonton, Labour)

The Treasury Committee interviewed members of the Financial Reporting Council this morning. They explained to us that their powers are about implementing or explaining and that they do not have powers to deal with companies that break the rules in this regard. Would it not therefore be appropriate to involve a body such as the FCA, which really could deal with implementation?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

As my hon. Friend Steve Baker highlighted, there is a responsibility on directors and there are criminal sanctions for criminal behaviour. We need to be very careful that we do not duplicate powers that already exist elsewhere and that we do not confuse the role of the regulators. It was the Treasury Committee that highlighted some of the problems in the existing regulatory system with the confusion of roles and remits. We want to be very clear in these reforms about what we seek to achieve.

The FSA—and in future the FCA—has a role to play. The FSA supports the FRC’s stewardship code through mandatory requirements on asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy. Those powers will transfer to the FCA.

John McDonnell (Hayes and Harlington, Labour)

I hope that what the Minister just said was helpful. Is he saying that the stewardship role that he envisages for the FCA will include an element whereby judgments can be made about behaviour in terms of corporate ethics?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

I am saying that what we need to ensure in terms of the stewardship code, and what the FCA does, is to require asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy, so the obligation is on asset managers rather than necessarily on companies themselves to disclose their adherence to stewardship matters.

John McDonnell (Hayes and Harlington, Labour)

Will the Minister give way?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

Yes, but I want to make some progress.

John McDonnell (Hayes and Harlington, Labour)

All right, I will not be a pain any further. To be frank, that does not move the matter on. The Minister need not give an answer on this tonight, but it would be incredibly helpful if he or one of his colleagues met my hon. Friend Lisa Nandy, me and representatives from the London Mining Network to talk this issue through because there is clearly a gap between the different institutions, which corporate ethics seem to fall down when it comes to their being pragmatically adhered to.

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

I am always loth to offer meetings on behalf of colleagues, because it has happened to me, but the hon. Gentleman may wish to approach the Minister with responsibility for consumer affairs, who is also responsible for corporate governance and the role of the FRC. That might be the most productive furrow to plough.

On amendment 38, Chris Leslie is absolutely right that we have heard it before. It is identical to amendment 150, which we discussed at some length in Committee before rejecting it. I do not think his arguments today were any more persuasive than they were a few months ago. I know that he will find that personally disappointing but I am sure he will get over it. In short, the objectives of each authority are broad enough to enable them to make the rules suggested in the amendment.

More generally, these issues are better considered in other forums, including those concerned with governance across the corporate sector. I also point out gently to

the hon. Member for Nottingham East that the Department for Business, Innovation and Skills recently consulted quite widely on executive remuneration and that it included in that consultation both the suggestions that have been made, neither of which received significant support.

[

Interruption.

]

The hon. Member for Nottingham East says that it depends whom we consulted but it was an open consultation. Views were encouraged from across a wide range of bodies, including investor organisations, and I am sure that institutions such as the TUC and others would have taken part. I know that the Treasury Committee is also looking into this matter, so perhaps Mr Love can illuminate us about the conversations he has had this afternoon with Baroness Hogg.

Andrew Love (Edmonton, Labour)

I thank the Minister. What we were told today was that remuneration committees draw from a very select pool and are heavily influenced by the argument that their chief executive has to be at or above the average of all chief executives and that comparisons are made directly with the United States, which may be inappropriate. It was also made clear to us that we should widen that pool. One suggestion of how that could be done was to put an employee on the remuneration committee. If that is not acceptable, how is the Minister going to address this problem?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

That is why the Government have embarked upon a consultation to look at ways to enhance the accountability of boards to their shareholders, looking particularly at the issue of executive pay. That is a welcome move and the Government will shortly respond formally to the responses to that consultation. I agree with the hon. Member for Nottingham East that shareholders must play a more powerful role in these issues, and in recent months they have put across their views more powerfully.

The hon. Member for Nottingham East spoke about the disclosure of voting patterns. As he mentioned, there is provision for such a power in the Companies Act 2006. The previous Government made it clear that they would use the power only if market practice did not improve. The outcome of the stewardship code has been to encourage institutional investors to vote more and to disclose that. The latest Investment Management Association survey of institutional investors shows that 66% of those surveyed now publish their voting records. That is up from 21% in 2004. Professor John Kay, in his review of equity markets and long-term decision making, is considering the issue and will report in the summer.

Let me move on to Government amendments 7 and 8 and Opposition amendment 73. Amendment 8 makes two minor technical corrections and allows firms and the Financial Ombudsman Service to make referrals to the FCA on matters of mass detriment. Amendment 7 deals with super-complaints. The new provision in the Bill for the FCA to receive super-complaints from designated consumer bodies has been widely welcomed. I am grateful for the scrutiny provided in Committee and in particular for the arguments made by Yvonne Fovargue, who is in her place, who tabled an amendment in this connection.

It has never been the Government’s intention that the super-complaints mechanism could be made available to bodies whose purpose is to represent professional investors, but the debate in Committee highlighted the fact that the drafting would allow that. The amendment therefore revises the definition of “consumer” used in the super-complaints mechanism to exclude representatives of authorised firms.

Amendment 73 seeks to require the Government to introduce a provision allowing for collective proceedings for small and medium-sized firms and to give them access to super-complaints. The amendment has created confusion in the minds of hon. Members about the rights currently available to businesses to make complaints. Paragraph (b) of the amendment suggests that small and medium-sized businesses cannot make complaints. That is not the case, but I shall return to that.

I deal first with collective proceedings. The Government are consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law, including on whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. We should take the opportunity to learn from the outcome of that consultation and reflect on what the implications might be for the financial services sector before proceeding to legislation. It would not be appropriate to legislate today in haste, without having consulted.

On access to super-complaints, the provisions in the Bill will not prevent bodies representing small and medium-sized enterprises which fit the relevant definition of consumers from making super-complaints. Within the new statutory framework the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill. These criteria will be of interest to parliamentarians and to organisations seeking to become super-complainants. I can therefore announce to the House that the Treasury will publish draft criteria for consultation later in the year.

On paragraph (b) of amendment 73 about the rights of small and medium-sized businesses to make complaints to the FSA, there has been much discussion about the mis-selling of interest rate hedges. I do not want to comment on that directly, as it is a matter for the FSA. However, I can point out that the FSA already has a powerful toolkit that can be very effective. That includes its powers to establish industry-wide or firm-specific redress schemes under section 404 of FSMA, which was recently used in the case of Arch Cru. The FSA is consulting on such an arrangement to help people who lost out as a consequence of the issues at Arch Cru.

The FCA will have the powers that the FSA already has to refer firms to enforcement, to use supervisory measures, to agree with or require a firm to undertake the necessary remedial action, including carrying out a past business review, and the payment of redress, or obtaining redress for firms through their use of their restitution powers under section 384 of FSMA. There are therefore provisions in place that will help the FSA to tackle complaints of mis-selling that businesses as well as consumers have brought to it. I hope that provides the clarity and reassurance that my hon. Friends are looking for.

My hon. Friend David Mowat picked up in his interventions the confusion that amendment 73 has created. The FSA has the power to take action to help businesses which feel that they have been mis-sold products and to ensure that restitution can take place.

Steve Brine (Winchester, Conservative)

I am listening carefully to what the Minister says, and I agree that paragraph (b) has caused some confusion and may have planted some hope that did not need to be planted in some of my constituents, who have some sympathy with amendment 73, as do I. The Minister said that the FSA or FCA has a toolkit at its disposal, and I am sure it has been listening carefully to what he has said at the Dispatch Box this afternoon. Will he consider writing to the FSA to make that crystal clear, giving clarity to Members and constituents listening to the debate today?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

I would not say that amendment 73 sowed seeds of hope. Rather, it sowed seeds of doubt by suggesting that those powers were not available. Of course they are available. I have written to hon. Members in respect of Arch Cru and also about interest rate swaps recently, setting out the work that the FSA is doing in this regard. It is looking carefully at the sales practices of a number of institutions in respect of interest rate swaps and will take action, as appropriate. I can reassure my hon. Friends and those who take a close interest in these matters on behalf of their constituents and businesses in their constituency that the FSA has the powers that it needs to tackle these issues properly and fully and to get to the bottom of them.

Mike Freer (Finchley and Golders Green, Conservative)

Sadly, I am none the wiser. I have three constituency cases in front of me on this very issue. Two of them include a letter from the FSA which clearly states that this is a matter for the courts to decide and is not part of its remits under the complaints procedure. Can my hon. Friend clarify why the FSA is telling constituents that it is a matter for the courts, but he says it is a matter for the FSA?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

There are two issues here. There is a route through the courts that any type of consumer, whether retail or a business, can use if they have been mis-sold a product. That is a normal commercial right. What the FSA has identified as a consequence of the number of complaints on the issue that it has received from businesses is that it needed to undertake more work. It started that work in mid-March. It was looking at products that were sold in the run-up to the financial crisis, and as a consequence of its investigations it believed that more work was needed to establish the scale of the problem and to determine what action should be taken.

There is nothing contradictory about the letter that the FSA sent. Thanks to the efforts of a number of hon. Members who raised with the FSA the concerns of businesses in their constituency, it recognised that they were not just isolated examples and that there was a wider issue that needed to be addressed. Its powers under FSMA enable it to address the problem in the right way. That is a welcome step forward by the FSA.

Andrew Love (Edmonton, Labour)

Looking at the issue from a small business perspective, small businesses are not allowed, as the amendment proposes, to take collective action on these

matters through the courts, which is frustrating. They feel that the FSA is not responding to them adequately. There are great delays in the system. The Minister has commented on the legal aspect of collective actions currently going through. May we have some reassurance today that the FSA will act more promptly in dealing with these matters?

Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)

As a consequence of the reforms that we are introducing, we are giving the FSA, and now the FCA, tougher powers to tackle these problems. The FSA has a much-reduced appetite for risk and a more interventionist approach to tackling matters where there appears to be consumer detriment. Some people feel very uncomfortable with this, but it is right for the FSA to act vigorously in defence of consumers and to take the necessary action to ensure that consumers get a fair deal. The Bill takes that one step forward and that is why we have been keen to ensure that we give the FCA more powers, which it has demonstrated the appetite to use.

Amendments 5 and 6 require the FCA and the PRA to publish a statement explaining how they consider making the proposed rules compatible with the principles of regulation set out in new section 3B. Given the important framing role of these principles, I agreed with the suggestion made by the hon. Member for Nottingham East in Committee that the Bill should be explicit about the regulator’s duty in that regard, and I committed to tabling the appropriate amendments when the Bill returned to the House. I am sure that the hon. Gentleman will be keen to support them.

Amendments 13 and 14 are minor and technical and are designed to maintain a position currently provided for in FSMA whereby the FSA is not required to make rules for the FSCS that provide cover over all regulated activities. The amendments ensure consistency with section 214(1)(g), which provides that the scheme may in particular provide for a claim to be entertained only if it is the type of claim specified by the scheme. These are technical changes and I hope that hon. Members will support the Government amendments and reject those tabled by the Opposition.

Christopher Leslie (Nottingham East, Labour)

I am sorry that the Minister has not reacted to the importance of the issues in the amendments that we have tabled today, particularly when it comes to the need for small firms to have a greater capacity to complain or to make collective proceedings when there is lack of clarity about their capability to do so. The issues were raised not only by the Opposition; Government Members also felt it necessary to clarify these issues. The Minister should at the very least have committed to write to hon. Members so that they could pass on to the businesses in their constituencies a clear route map for communicating some of these questions, such as interest rate swap mis-selling. All we sought was that small firms that feel aggrieved should have their concerns taken seriously as consumers of financial products, but hopefully the point has been made in the debate.

I am sorry that the Minister felt it necessary to reject our amendments on stewardship issues. It is not good enough for the Government to rebut such questions. The Prime Minister had plenty of warm words in January

when this issue was high on the media agenda, but we have seen precious little action subsequently. The Government are not taking the stewardship issue seriously and it is important that they do so, particularly with regard to the remuneration committees of some of the largest corporations and our banks and the idea that these obscene bonuses and excessive pay packages can continue to roll on. As my hon. Friend Mr Love said, the remuneration committees are self-perpetuating. Would it not be a good idea to broaden them out and try to put an employee voice on their panel, and make sure that they appointed consultants in a way that did not conflict with their own management’s vested interests?

After we have voted on amendment 40, which we debated on day one of Report, on the need to regulate some of the excessive high-cost credit arrangements, I will press to a Division amendment 38 on remuneration committees, because it typifies one of those areas on the stewardship agenda where we need to see action most swiftly. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.