New Clause 27 - Money laundering offences: electronic money institutions, payment institutions and deposit-taking bodies

Part of Financial Services Bill – in the House of Commons at 4:00 pm on 13th January 2021.

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Photo of Pat McFadden Pat McFadden Shadow Economic Secretary (Treasury) 4:00 pm, 13th January 2021

My hon. Friend is absolutely right that this throws into sharp relief the claim that we hold all the cards. It also throws into sharp relief the debate about divergence, as that remains undecided. The fact that the agreement approved by this House two weeks ago did not cover financial services in any meaningful way was not an accident; it was a choice that the Government made. Step by step, the Government abandoned any attempt to prioritise the market access that the financial services sector, and indeed services in general, had until the end of last year. I remind Conservative Members of the Chequers paper published in 2018, of which they may have more or less fond memories. It acknowledged that on this issue,

“there will be more barriers to the UK’s access to the EU market” than there are today. On equivalence regimes, it said:

“These regimes are not sufficient to deal with a third country whose financial markets are as deeply interconnected with the EU’s as those of the UK are. In particular, the existing regimes”— that is, the equivalence regimes—

“do not provide for…institutional dialogue…a mediated solution where equivalence is threatened by a divergence of rules or supervisory practices”.

That which was deemed insufficient by the Government two and a half years ago has now become the height of their ambitions, and even that has not yet been achieved. With each step back from what they aimed for before, the incentives to shift funds and people become bigger.

A few days ago, the Chancellor talked in an interview about a big bang 2.0 for the financial services sector. Would it not be better to secure the basics—a minimal level of market access—rather than indulging in another bout of meaningless overclaim? There is a potential route to saving something, because the agreement calls for a memorandum of understanding on financial services to be agreed by the end of March. Can the Minister confirm that it is the Government’s objective to secure equivalence recognition by the end of that three-month period?

That is what our new clause 8 calls for: a report on the progress within the timescale set out in the agreement approved by the House a couple of weeks ago. Achieving such equivalence would be a far lower and more precarious level of market access than the sector has enjoyed until now, but it would be more than the no-deal outcome that the Government have given it at the moment. Will the Minister commit to reporting to the House on the progress of that issue? Without progress, the sector has no clarity about the basis on which it will trade with the European Union in the future.

We do not need to move new clause 6. The Minister is correct to say that we raised the issue of FinTechs and money laundering in Committee, where an amendment was moved by my hon. Friend Abena Oppong-Asare. The new clause seeks to equalise the rules on seizure of assets and the proceeds of crime for FinTechs and traditional financial institutions. I am grateful to the Minister for responding positively to our plea about that issue and for bringing forward new clause 27 and the associated amendments.

I now turn to some of the other issues on the amendment paper. We support the efforts of my hon. Friend Stella Creasy in new clause 7 to bring the operations of the buy now, pay later sector under the auspices of the FCA. That is a good example of how regulation has to respond to innovation; the Minister rightly said that it cannot stand still. This is a sector that innovates, and the emergence of the sector is an innovation, at least on the scale on which it is currently operating, and it has been growing over the past year. Much of the sector does not charge interest or fees, but the model is based on encouraging people to buy more. There are certainly financial penalties for borrowers who get into more debt than they can handle or who find themselves unable to make the payments.

To those companies that have taken the approach of St Augustine—“Make me just, Lord, but not yet!”—and have said that they favour regulation, but not now, which is a bit like the Minister with net zero, I would say, look again at the terms of new clause 7. All it calls for is the protection of consumers from unaffordable debt. Exactly how to regulate and do that is left to the FCA to decide. The new clause simply establishes the principle, which we support.

My right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Hayes and Harlington (John McDonnell) have tabled amendments on the failure to prevent economic crime. We received strong representations on this issue in written evidence, and the problem is focused in this way: when wrongdoing happens within a company, far too often it is in the interest of directors and senior managers to plead ignorance. That way, if anyone carries the can at all, it will be someone further down the line, and the culture and the circumstances that allowed the economic crime to happen go unexamined.

That happened time after time during the LIBOR scandal a few years ago. I had the task, maybe the pleasure, of serving on the cross-party parliamentary inquiry, and chief executive after chief executive of major financial institutions came into this building to express their incredulity at what their own traders were up to. These were some of the highest-paid people in the world, and each one testified that they learned what was happening in their own company only when they read about it in the newspapers. It worked for them, and there were no corporate prosecutions for this in the UK.

The amendments essentially seek to remove the defence of ignorance when it comes to corporate crime. The truth is that we have already legislated to remove that defence in other areas. Such a defence would be regarded as completely bogus and illegitimate when it comes, for example, to tax evasion or bribery. We would not let directors and senior managers plead ignorance in those circumstances.