To ask Her Majesty's Government whether it is their policy to reduce unnecessary regulation of financial services; and if so, whether they intend to review current Financial Conduct Authority practices to ascertain whether that regulator is going beyond what is appropriate and necessary to fulfil that policy.
My Lords, the Government are committed to reducing unnecessary regulation in the financial services industry, but also recognise the need for an effective and proportionate regulatory regime to ensure that markets function well and consumers are appropriately protected. The Government do not believe that the FCA is going beyond what is appropriate and necessary to fulfil the Government’s policy.
I thank the Minister for that Answer and I draw his attention to the Queen’s Speech. I am sure he will agree that the commitment to further strengthen our resilient economy, following press reports, means that a specific review in this Parliament of the somewhat opaque policies and procedures of the FCA will be most welcome, in particular to the financial services industry.
We have to recognise that the review that took place in light of the situation that occurred 10 years ago, with the financial crisis, necessitated a wholesale reform of consumer protection and also of the strength and stability, including the systemic strength, of the financial services industry. That was why these radical reforms were brought forward: to put consumer protection at the heart of this and to improve the conduct and authority of the mechanism by which that is done. That comes at a cost, and the cost has to be borne, ultimately, by consumers. That is one reason that it is important that the FCA pays attention, which it does, to the fact that it is required, as well as protecting consumers, to create an efficient and effective market for consumers so that they get good value for money as well as protection.
Will the Minister undertake to tread very carefully in this area? We all know what we have been through in the last decade; it was as a result of being seduced by appeals for lighter-touch regulation, and we do not have any desire to go through that sort of process at all. Any change will have to be justified, not just because the industry wishes it but as a way of respecting the needs of consumers in this country to have a properly regulated financial sector.
The noble Lord is absolutely right. Virtually every adult in the United Kingdom is a consumer of financial services, be it for mortgages, credit cards, loans, insurance products or pensions. It is essential that consumers continue to have confidence in the institutions that provide those services so that they continue to do those things, which are very much a social and economic good for this country.
My Lords, does the Minister agree that, at a time when many of our major financial institutions are embroiled in scandals over how they have treated their customers, this is not the time for deregulation but for more effective regulation and, in particular, the use of more personal accountability for malefactors?
It is certainly a time for better regulation; I very much agree with that. There has been a suggestion that the way in which the FCA has conducted these matters has not focused on the areas of greatest risk. One area it has looked at is the small businesses, in particular, that have been affected by the regulation, whereas perhaps, historically, they are at lower risk. That was why the Enterprise Act 2015 required the FCA to look at the proportionality and the cost of regulation, particularly on those small businesses, which I think was the right step forward.
My Lords, does the Minister agree that in fact the FCA is becoming an effective protector and guardian of individual consumers in regard to the financial services industry? Does he also agree that it is time now to consider expanding its remit to small businesses, especially microbusinesses? We do not need a repeat of the abuses that have happened with RBS and HBOS, and an expanded, proactive role for the FCA in this arena would be very much welcomed by small businesses, the backbone of the country.
Those major banks, of course, are covered by the Prudential Regulation Authority, through the Bank, but the FCA has a prudential role as well as its regulatory role. As I mentioned, it is important that we recognise that where regulations apply it is done in a proportionate and appropriate way for consumers and also for the businesses that are being dealt with.
I suppose we can all declare an interest in that. My noble friend may be encouraged to hear that as a result of the money laundering regulations that were laid before the House in June 2017, the FCA has issued guidance on politically exposed persons to ensure that they are dealt with on a case-by-case basis and in a proportionate way, and that organisations focus on those individuals who would be at highest risk and recognise those who are at lowest risk, which I am sure would include all Members of your Lordships’ House.
My Lords, UK non-life insurance brokers are regulated by the FCA and bear the costs of that regulation. Is the Minister aware that the relative cost in the UK is more than twice that in Ireland, Hong Kong and Bermuda? The multiple is bigger in France and Germany. Does he agree that this is unhelpful to the industry and is actually evidence of overregulation?
I respect the knowledge the noble Earl has in this area but there are differences in the way that the regulation is funded in different jurisdictions. I come back to the point that we need to look at how regulation is applied effectively on those who are at highest risk and recognise those who are at lowest risk. The FCA has a statutory duty to establish and consult a small business practitioners’ panel on policies impacting on small and medium-sized enterprises, and I think that is the right way forward.
The Minister will know that the European Banking Authority, currently located in London, has a duty to maintain financial stability and ensure the integrity of the system. That authority will go after Brexit. What thinking have the Government done on whether we should seek equivalence or strike out on our own on a further strand of regulation?
All those matters are being dealt with through the repeal Bill which is going through the other place, but we have made it very clear that financial services are extremely important to this country. Access is extremely important. We want to be able to continue to offer the UK’s world-beating export of financial services to the eurozone area and around the world after exiting the European Union.