Clause 21

Financial Services Bill – in a Public Bill Committee at 4:45 pm on 12th January 2010.

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Meaning of “financial services claim”

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 59, in clause 21, page 24, line 14, at end insert ‘, and

‘(c) is brought by or on behalf of (and is limited to) persons who are consumers;’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss amendment 60, in clause 21, page 25, line 15, at end add—

‘(8) In this section “consumer” means any natural person, who in the matters to which the claim relates, is acting for purposes which are outside his trade, business or profession.’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Clause 21 sets out the definition of a financial services claim in the context of who the defendant might be. It mentions an

“Authorised person; authorised person who is an investment firm or credit institution; person acting as an appointed representative; payment service provider; a person carrying on a business of a kind mentioned in section 226A(3) of FSMA”.

I want to ensure that the redress or collective proceedings process covers not only people who are authorised by the FSA, but those who have undertaken consumer credit action. We know that those who are provided with consumer credit fall outside the remit of the FSA. However, we do not have a definition of who brings the complaint—the claimant—in this process. Amendment 59 would introduce a new paragraph (c), while new subsection (8) defines a consumer.

That creates further clarity regarding who is bringing the complaint and what the process is. Without defining who has suffered the loss, it is difficult to say what a complaint actually is. We need symmetry. We have identified the defendants, but should we not identify who is in a position to make claims? It is a relatively straightforward amendment.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The effect of the amendments is to exclude small and large businesses by virtue of the definition of “consumer” given by the hon. Member for Fareham in amendment 60. I will explain why we believe it right to include in the scope of class actions businesses, especially small businesses, as well as charities, the self-employed and individuals acting in a professional capacity.

The definition of those whose claims can be represented is related closely to the definition of “consumer” in the Financial Services and Markets Act 2000. I consider it important to maintain the relationship between those who may benefit from regulation and those who may benefit from collective proceedings. It is advisable and desirable to avoid a situation in which a firm and an individual are protected by the same regulation, but the individual has access to greater or better routes of redress. I also do not see any reason why court proceedings brought by large businesses should not benefit from the more effective group litigation procedures, although for small businesses, charities and the self-employed, the scope to act in that way is clearly highly important.

The collective proceedings procedure does not create new liabilities or claims; it is simply a more efficient way of dealing with a number of similar claims. If a group  of firms or professionals have valid claims, it seems to me that they should be able to apply for a class action if that is the most efficient way of handling those claims. For their claim to be valid, businesses will have to show that they have cases with generic issues that can be dealt with on a group basis by a representative. The court will be able to authorise the action only if that is the most appropriate way of disposing of the issues. To my mind and the Government’s, the same logic applies to businesses and to individuals.

Perhaps the hon. Gentleman is concerned that the clause would allow commercial creditors to apply for a class action against a financial services provider. I draw the Committee’s attention to the definition in clause 21(1) of what types of claim they might be able to make through a class action. It is limited to cases in which they could show that their claim was connected with carrying on a regulated activity or dealing with the authorised person in the course of a regulated activity.

Ultimately, of course, it is for the court to decide the most appropriate way to manage a large number of claims. I believe that our approach is preferable to excluding a whole category of potential claimants, as the hon. Gentleman’s amendment would. I hope that I have persuaded him not to press his amendment.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

It is an interesting interpretation of my amendment. I would not say that it prevented a plumbing company that took part in a regulated transaction, for example, from pursuing a claim. I certainly expect that it would prevent a bank from suing another bank or a group of professional investors from suing another institution. I do not think that it would stop most businesses from taking part in a class action.

My amendment is targeted predominantly at consumers: ordinary people in the street who buy financial services products. My impression was that it aims not to enable a string of corporates to take part in actions but to help people who might feel that they were not properly represented or could not afford to bring an action. The Minister’s explanation seems to have widened the scope of who could bring an action beyond what I think most people reading the Bill would assume.

I tabled the amendment to tease out who the Government expect to benefit from the provisions. It seems that anyone, whether they are wholly unfamiliar with the legal system or a large multinational, can use them. They are presented as a measure to help consumers rather than corporates, so the Minister’s response indicates how wide the group of claimants can be. It is much wider than I think people assumed before he responded.

Although I will withdraw the amendment, tabling it has clarified who the Government expect to take part in the process. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.