New Clause 3

Financial Services Bill – in a Public Bill Committee on 14th January 2010.

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Securing consumer protection

‘(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) After section 5, insert the following new section—

“5A Securing consumer protection

(1) This section applies where the Authority becomes aware that any feature or combination of features of a financial services market, product, service, or provider in the United Kingdom is or appears to be significantly harming the interests of consumers.

(2) The Authority must take such action as it considers reasonable and practicable to remedy, mitigate or prevent any detrimental effects on consumers resulting from or relating to the feature or features of a financial services market, product or provider.

(3) The Authority must ensure that action taken under subsection (2) shall have regard to the need to achieve as comprehensive solution as is reasonable and practicable.

(4) Action under subsection (2) may include action by the Authority itself and recommendations on the taking of action by others where the Authority can not by itself meet the requirements of subsection (3).

(5) For the purpose of subsection (1) the Authority becomes aware in the event of any of the following—

(a) its own research, reviews, monitoring, supervision or enforcement work;

(b) on a referral by the scheme operator of the ombudsman scheme or the Office of Fair Trading; or

(c) Following acceptance of a request from a designated consumer body made under subsection (6).

(6) A designated consumer body may by presenting evidence of apparent or likely significant harm to the interests of consumers request that the Authority takes action under this section.

(7) The Authority shall within 90 days of a request under subsection (6) publish a response stating—

(a) whether it accepts or rejects the need for action; and

(b) the reasons for its decision.

(8) For the purpose of section (5)(c) “designated consumer body” includes—

(a) a body designated by the Secretary of State by order under section 11 of the Enterprise Act 2002;

(b) the financial services consumer panel; or

(c) the consumer financial education body.

(9) The Authority shall prepare and publish a report within one year of any of the events set out in subsection (5) setting out the action it intends to take and the reasons for its decisions.

(10) In this section reference to a financial services market, product or provider refers to regulated activities as defined by Section 22.”’.—(Mr. Love.)

Brought up, read the First time, and Question proposed (this day), That the clause be read a Second time.

Question again proposed.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

It is a pleasure to serve under your chairmanship, Mr. Gale, for this last sitting.

I was saying this morning that although I have great sympathy with the sentiments behind new clause 3 and with what my hon. Friend the Member for Edmonton (Mr. Love) seeks to achieve, I do not believe that it would be right to include it in the Bill. If the provision were accepted, the Financial Services Authority would be obliged to take action in the circumstances described in the new clause with a view to achieving as comprehensive a solution as was “reasonable and practicable”, regardless of the effect on market confidence or financial stability.

We have heard before—I said it again briefly this morning—that in some circumstances action that benefits consumers in a particular case might be detrimental to financial stability, which of course could be prejudicial to the interests of consumers more generally. That underlines the interplay between the FSA’s objectives. As I said on amendment 41, we do not want to impose too rigid an approach on the FSA. What is needed is a sensible and carefully calibrated approach to taking decisions.

There are other practical reasons why I recommend that the Committee resist the new clause, although I agree that my hon. Friend has done a service to the Committee by raising this important matter. By removing the FSA’s discretion to act, the new clause may constrain the authority in its ability to achieve informal or voluntary solutions without taking enforcement action. That could be difficult. On a practical level, the wording of the new clause could result in the FSA being required to take some form of action in every case, or at least to go through the process of considering what action would be reasonable and practicable—including in relatively minor cases that do not justify such an intensive use of resources.

It is not clear that the new clause would improve on the present position, under which the FSA can act if it considers that such action is appropriate and proportionate. The FSA does not have unlimited resources, and it must be allowed the discretion to prioritise cases and not to act when it seems that the costs may exceed the benefits. In its annual report, the FSA has to say what actions it has taken to achieve its objectives, which means that it can be held to account for its use of that discretion.

I understand that there has been some frustration that the FSA appears not to have responded to complaints or evidence submitted to it. My hon. Friend will be aware that the FSA requires companies to handle complaints within eight weeks; if dissatisfied, consumers can complain to the Financial Ombudsman Service. The FOS can raise issues with the FSA as appropriate. The FSA can also use individual complaints as a pointer to the possibility of wider problems.

I accept that in some cases there may be no way of telling whether appropriate action has been taken in response to a complaint, another issue that was raised by my hon. Friend. There are obvious reasons for that. I shall rehearse some of them. It may be down to fairness, especially before final decisions have been taken against firms, partly because sections 348 and 349 of the Financial  Services and Markets Act 2000 restrict the FSA’s ability to disclose confidential information relating to the firms that it regulates. Importantly, it reduces the risk of jeopardising further FSA action, as section 391 of the 2000 Act constrains the FSA from disclosing whether it has issued a warning or decision notice against a person who is the subject of an enforcement action.

We discussed some of these issues at length before Christmas, although I realise that my hon. Friend continues to be concerned about such matters. We would all like consumer problems to be addressed as quickly as possible, but the FSA is bound by strict standards of evidence and impartiality. It must investigate hearsay evidence thoroughly, and it will always look for the most proportionate response to a problem, which may involve negotiating voluntary action by firms or issuing guidance. Any rules it makes must be subject to consultation and cost-benefit analysis. Earlier in the debate we heard that there must be adequate checks and balances against arbitrary decisions by the FSA. Imposing deadlines in the way my hon. Friend suggests is not the right way forward.

We want the FSA to be as open as is reasonably possible, but there are good reasons for being careful about disclosure. They would include the legal and fairness issues that I have mentioned, but there are also practical issues. Firms are more likely to provide sensitive information if they believe that the regulator will deal with it in confidence. Concerns that information provided to the FSA could end up in the public domain are likely to change how individual firms behave.

My hon. Friend raised the issue of super-complaints and the proposal for a super-complaints regime. As he said, such a regime applies to the Office of Fair Trading and is contained in the Enterprise Act 2002. However, the OFT does not benefit from a statutory consumer panel, unlike the FSA which is required to consult the financial services consumer panel. I realise that is not identical to designating consumer bodies in the way proposed, but it does give the consumer a powerful voice at the heart of the FSA.

As my hon. Friend knows, we are already giving the FSA tough new powers, and we have debated clause 26, which will require firms to establish consumer redress schemes. The FSA can exercise that power when it appears that there might have been a widespread legal or regulatory breach by firms, which has caused consumers loss. New powers are being introduced in the Bill, and I know that my hon. Friend and others will welcome them.

The FSA and the OFT will soon publish a discussion paper on the action they are taking to ensure that consumers receive swift and effective redress. That will include a discussion of the way that the regulators and the Financial Ombudsman Service work together, the roles and responsibilities of other stakeholders, and how to identify and close down early emerging issues that might affect large numbers of consumers.

The proposals in the Bill on consumer protection that we have already debated take the game forward significantly. Clearly, there are continuing live issues, which can be considered as part of the discussion paper. I hope that what I said this morning and what I have just said will reassure my hon. Friend that his concerns are not only recognised, but being addressed with substance, and that he will feel able to withdraw the new clause.

Photo of Andrew Love Andrew Love Labour, Edmonton

It is always a pleasure to serve under your chairmanship, Mr. Gale, and I apologise to you, and perhaps more importantly to the Minister for arriving a few seconds late. I hope I did not miss any of my hon. Friend’s contribution.

Naturally, I am disappointed that the Minister does not see more merit in the new clause, but I am not surprised that he does not offer it uncritical support. I am somewhat optimistic because in his contribution he recognised some of the concerns about how orientated the FSA is to consumer concerns, and some of the lapses in its promptness and transparency when dealing with such issues.

I shall return to that point, because it bears on the debate that we have just had, but perhaps I could pick up one or two of the comments made during the debate. I apologise to the Committee because my opening contribution on the new clause included a somewhat rhetorical flourish to suggest that the FSA should become a consumer champion. That may have been going just a little too far, because I recognise the concerns expressed by the Minister about the need to balance the differing objectives of the FSA. That is at the core of how we carry the contents of the new clause forward. If hon. Members will bear with me, I shall return to that.

I want to comment on two issues that were raised. Both were about greater accountability. One of the outstanding issues is the accountability of the FSA to the public and consumers. A number of contributions mentioned the need for greater transparency, and the new clause reflects that. It also reflects the need for prompt action. I hope that the Minister will take those issues away with him.

I was a little less convinced by the Minister’s concern about bringing rigidity into the way in which the issues are dealt with. That certainly was not the intention behind the new clause. If that is one of the concerns, I hope that consideration can be given to making the measure more flexible so that it really does respond to the issues raised by many consumer groups and organisations.

I have to return to what I think was at the centre of the Minister’s concern about the new clause. He said that, if accepted, it would rank consumer protection above the other objectives of the Financial Services Authority. I accept that is an issue and that the new clause may go a little too far in pushing the boundaries—perhaps naturally enough, considering that is where there are major concerns in relation to the FSA. When putting the new clause together, it certainly was not my intention to skew the balance too much in favour of the consumer, as I recognise that there are other important objectives for the FSA, but I accept that it is a concern.

There is enough concern among consumers in the financial services marketplace, and it has been somewhat heightened by the turbulence that we are experiencing in financial services markets; the recession is bringing out a number of issues that will become very important in relation to consumer redress. I therefore hope that we will not lose the measure, but I accept the Minister’s plea that we may have gone too far. On that basis and on the basis that we will not forget about the consumer issues that are reflected in the new clause, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.