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 4:30 pm on 13th January 2021.

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Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury) 4:30 pm, 13th January 2021

Thank you, Madam Deputy Speaker. I will certainly do the best I can within the constraints of the technology that we have. I wish everybody a guid new year.

As colleagues will see, the SNP has tabled a range of amendments to this wide-ranging portfolio Bill. We have done so because we feel very strongly that the Bill was an opportunity to strengthen consumer protection; to take on the long-running and vexed issue of mortgage prisoners; to look at the wider responsibilities of financial services firms in areas of climate change, the sustainable development goals, ethics, money laundering and criminality; and to try our very best to mitigate the unfolding disaster that is Brexit.

On the first day of trading after the transition period ended, the City of London lost €6 billion in euro-denominated trading to venues in Amsterdam and Paris by companies such as London Stock Exchange Group, CBOE, and Aquis Exchange. Ernst & Young has said that £1.2 trillion of assets and 7,500 jobs had moved from the UK to the EU before 31 December. Trade frictions are apt to make this situation worse. Only last week, the Prime Minister was asking businesses what further divergence they would like to see. On the contrary, the message that we get when talking to City figures is that the only folk pushing for deregulation are Tory Back Benchers. Businesses see the importance of having open access to the EU market. It is vital that the UK authorities take into account the impact of frictions before taking us further away from the rules that the rest of Europe abides by.

SNP amendment 8 would ensure that the likely effects of the rules on trade frictions between the UK and EU are considered before part 9C rules are taken. Amendment 11 does the same for CRR—capital requirements regulation—rules. Our new clause 20 would force the Tories to come clean on the impact of financial services divergence from the EU. We feel very strongly that it is possible that if Scotland had been permitted to negotiate its own EU deal, taking into account our priorities, financial services operations could well have moved to Edinburgh, Glasgow and Aberdeen. It would certainly be better than how things are operating currently, with added layers of complexity. I have heard that a trader in London now cannot speak to an EU-based client without an EU-based trader also on the call to chaperone. The UK Government face a choice of two options: to try to achieve equivalence with the EU, which will essentially leave them a rule-taker with no seat at the decision-making table, or to forget about equivalence altogether and tear up the rulebook. It is expected that this latter option will encourage EU efforts to strip financial services businesses from the UK, losing well-paid jobs and skills not just in London but in Glasgow, Edinburgh, Aberdeen and other places too. We certainly did not vote for such an outcome.

Moving on to money laundering and financial crime, successive UK Governments have failed to tackle money laundering. The Minister gave this a hefty further kick into the long grass of a further call for evidence in his response to the amendments proposed by John McDonnell. Kevin Hollinrake also reiterated the need for action. Our new clause 14 would force Westminster to come clean on tax avoidance and the misuse of Scottish limited partnerships, about which the Minister knows I care a great deal. New clause 14 would show how little impact this Bill has on tax avoidance. With the Chancellor talking of a return to austerity, tax rises and public pay constraint, it is galling that there is no urgency by the UK Government in tackling tax avoidance and evasion on the other side of that balance sheet. It beggars belief, still, that the Tories’ 2018 Bill left an oligarch loophole allowing money laundering by overseas trusts to buy UK property with impunity—and they still have not acted on SLPs.

Clause 31 amends schedule 2 of the Sanctions and Anti-Money Laundering Act 2018 to ensure that regulations can be made in respect of trustees with links to the UK. Without this, any powers that Her Majesty’s Revenue and Customs sought to exercise to access information on such trusts are at risk of being held invalid under legal challenge. The UK Government must introduce a robust and transparent system of company registration in order to combat money launderers’ attempts to register entities for illicit purposes. The UK Government must also act to tackle the ongoing improper use of SLPs via proper, thorough reform of Companies House.

The UK Government really ought to accept cross-party amendment 7 to tackle financial crime and genocide, standing in the name of Rushanara Ali, my relentless colleague on the Treasury Committee. Failure to take action on this important human rights agenda will never be forgotten. This UK Government are forever keen to talk up their global Britain credentials, so this amendment is a significant opportunity to take that lead. It builds on the UK Government’s adoption of Magnitsky sanctions. I implore the Minister: we should never allow those who have had a hand in genocide to make their investments in the UK.

We also strongly support cross-party new clause 4, which would make it an offence for a relevant body registered by the FCA to facilitate, or fail to prevent, specified economic crimes. That is an area in desperate need of tightening, because too many are getting away with that at the moment.

I have previously given the Minister a wee bit of slagging for the Bill, and I made a pretty safe prediction that our diligent amendments would be dismissed in Committee. The Government’s U-turn on electronic payment legislation, which they dismissed in Committee, shows why our financial safety depends on parliamentary scrutiny, and the introduction of such a measure at this late stage gives me some concern. In Committee, the Government dismissed the need to cover electronic money institutions and the difficulties around DAMLs—defences against money laundering—despite the urgency of that issue, yet today we have a slew of Government amendments, new clauses, and even a whole new schedule.

Electronic money institutions expected to see something in the Bill. The Opposition tabled amendments to correct that. The Minister said that he would update Members on Report, but it is late in the day to bring such comprehensive amendments to the House. I would be grateful for clarity on whether Government amendments missed the boat in the first draft, or whether there is another reason. I am concerned that we have not been given the evidence to ascertain whether the drafting and content of the amendments provides what electronic money institutions are looking for. It would have been good to have such information, so that we could have taken evidence on it at the start of this process.

This issue goes to the heart of many of the concerns felt by me and my colleagues. Legislation is not done well here at the best of times, and financial services is a huge area that requires legislation, oversight and expertise. The Government say they are taking back control, but they are taking it from Brussels and giving it straight to unseen bureaucrats and regulators, with little role for this House. At the very least, MPs must be afforded the same level of power and influence that MEPs enjoyed. We know that little time and priority is given to SI Committees, and that Committees such as the European Scrutiny Committee have no real impact on regulation. Select Committee business is already incredibly busy, and scrutiny of these new powers must not be squeezed into already limited time and space, especially given the work that the Treasury and BEIS Committees now have, due to the covid fallout and the economic recovery.

With this place not having even a budget committee, SNP Members find it doubtful that the Treasury’s new powers will receive the scrutiny they deserve. That is why we want a specific committee to deal with the swathes of powers that are being handed back to the Treasury, the FCA and the PRA. We must ensure that the use of those powers is subject to the affirmative scrutiny procedure, and new clauses 15 and 16 seek to address that issue. Until the regulatory framework review has been published, and a new oversight structure agreed, such clauses are vital to ensure that Government and the FCA consult Parliament, before using the powers in the Bill in a way that would make Henry VIII blush.

On areas of consumer interest, I fully support new clause 7, tabled in the name of Stella Creasy. Her speech in Committee was well-informed and passionate, and I suspect the Minister knows as well as the rest of us that she was correct to raise those concerns. There must be consumer protection for those using buy-now, pay-later schemes of all types. Clearpay and Klarna are on just about every retail website these days, and the lack of regulation around them exposes all our constituents to significant risk. Covid has led to approaching 1 million job losses, with implications for those who have outstanding debts. That toxic situation will only cause hardship in the long run, and the UK Government would do well to listen to the hon. Member for Walthamstow and act today, rather than wait for trouble to be heaped on our constituents in future.

I was glad to see the Minister make moves towards Help to Save accounts which I raised in Committee. I still have serious concerns that people who have managed to save some cash might lose access to it, although his assurances go some way to addressing those fears. It makes a degree of sense to transfer money into the same account that Help to Save bonuses were paid into, but the proportion of accounts where that is not possible must be closely monitored. I would like to know more about how National Savings and Investments will contact those who have poor literacy and may be disengaged, and I assure the Minister that I will be keeping a close eye on that. Saying that customers will be contacted could mean they get a letter in the post that they do not open and it goes into a pile with the rest of the unopened mail—we all have constituents who do that, and they have a right for their savings to be protected, along with those of everybody else.

I intend to press SNP new clause 21 on the financial services duty of care to a vote this afternoon.  Macmillan Cancer Support was incredibly helpful in drafting the new clause, and I pay tribute to all those who are struggling not just through covid, but though cancer treatment as well. Under new clause 21, the FCA must ensure that financial services providers act with a duty of care and in the best interests of all consumers. It would amend the Financial Services and Markets Act 2000 by inserting a “duty of care specification” and bringing that into the FCA’s general duties. There would be an explicit requirement on the FCA to secure an appropriate degree of protection for consumers, and to ensure that authorised persons carrying out regulated activities act with that duty of care.

Who would not want to see this? Macmillan has been clear that at present things are quite piecemeal and the current system is just not working for consumers. It has proposed this change for several reasons, not least because its research suggests that only 11% of people tell their bank about a cancer diagnosis. Macmillan suggests that it would be much better if the banks assumed that people may be vulnerable, rather than waiting for people to get into difficulties while going through cancer treatment, which will only add to their stress. One in three people with cancer experience a loss of income from employment following a diagnosis, losing an average of around £860 a month. That makes it more difficult for them to pay their bills, or to meet any other debts and obligations, which is why this proposal is so important and relevant.

Our new clauses 24, 25 and 26 would ensure that no more homeowners have their mortgages sold to vulture funds. As I said at the beginning, the Bill gives the UK Government an opportunity to deal with this long-standing injustice, and I urge them to give it further consideration. Some have argued that those who ended up as mortgage prisoners were somehow just bad borrowers who got into trouble when they lived beyond their means, but more often than not that is actually very far from the reality. As the hon. Member for Thirsk and Malton pointed out, an expert analyst enlisted by the all-party parliamentary group on mortgage prisoners, has concluded that it is not the case, and it is not how markets and ratings agencies see the situation either.

The APPG’s analysis of the mortgage books has established that at the point of origination, Northern Rock loans were all prime mortgages with lower than average default rates, exhibiting good borrower behaviour; that if we adjusted for standard variable rate overpayments coming in line with other high street lenders, not only would these borrowers potentially be up to date with the payments, but their loan balances would also be around 10% lower; and that if we adjusted to competitive rates on the market, the difference would be even more substantial. The bond markets paid over the market value for the books, indicating that anyone in those books is, in fact, paying over the market value for the standard variable rates. People have been stuck in these mortgages for nine years and it is high time for the UK Government to act. I appreciate what the Minister says about other actions, but for those listening there is very little to justify further delay in doing the right thing, on top of the delays that they have already faced.

We will rely on SMEs for our economic recovery, and our new clause 11 would ensure that they are treated fairly by the big banks to avoid the mistakes of last crisis. Many conversations at the Treasury Committee have reflected that the banks and regulators do not want to repeat scandals such as RBS GRG, but we feel very strongly that we must take the opportunity of this Bill to go further. The Federation of Small Businesses has issued a stark warning that around a quarter of a million small businesses could be forced to close this year due to a lack of Government support. In a survey of 1,400 small firms, 5% stated that they expected to pull down the shutters this year. If replicated across the UK, these figures would mean 250,000 firms closing down if the Tory Government continue to sit on their hands.

The owners of these SMEs are often very heavily personally exposed if their business fails. Their family homes are at risk, just as if they were mis-sold a mortgage. The FCA has already recognised in its 2015 discussion paper, “Our approach to SMEs as users of financial services” that they are often no more financially sophisticated than everyday consumers, but are at risk of mis-selling because of product complexity, limited choice and poorly managed expectations. I could say an awful lot more about this, but I appreciate the time constraints. I would just point out that, as things stand, a sole trader with a property empire of £30 million can sue for breaches of the rules, whereas an ice cream van owner whose accountant tells him to incorporate for tax reasons cannot. It is a very illogical distinction between individuals who can take action and companies that cannot. I very much urge the Minister to look at that.

This Bill was an opportunity to do an awful lot more in a number of areas. As I and the Labour Front Benchers have set out, there is still much more that should be done to secure a future for financial services—a future that has been entirely undermined by Brexit, which will make things significantly more difficult. Huge questions on equivalence remain unanswered, and there is still no certainty of an agreement on a regulatory equivalence deal between the UK and the EU. For financial services, this deal is effectively a no-deal Brexit, which neither Scotland nor the City of London voted for. UK firms and their employees can no longer freely operate in the EU, and this has been a source of shockwaves across the sector. Worse still, there is no timescale for any kind of agreement.

Many companies are choosing to move their operations to the EU, rather than hang around for an indefinite period of time for an equivalence deal. The UK Government have given very little consideration to financial services in the negotiations, and there are far-reaching implications—far beyond those who work in the sector, but to each and every one of our constituents who needs that certainty and who needs interactions with financial services to be done properly for their own protection.