It is a pleasure to serve under your chairmanship this afternoon, Mr Howarth. I have three brief points, the first of which seeks to be helpful to the Committee. The Government said in their response to the Joint Committee on the draft Bill that they have asked the Bank of England and the Financial Services Authority to provide a note about the proposed consultation arrangements for the Prudential Regulation Authority. That was published on the Bank’s website last Monday, but I have been informed by House authorities that the Treasury may not lay the note in the House of Commons Library until there has been an explicit ministerial commitment to do so. I therefore make such a commitment.
My second point takes us back to the issue of consumption. We are not entirely convinced that consumption has been defined in statute anywhere, so if we were to insert it, we would need to define it. The rationale behind the phrase,
“the supply of particular kinds of good and services”,
is that we are following in the best footsteps of the previous Government. They used similar language in the Financial Services Act 2010, with which both I and the previous Government were content. I agree, however, with the hon. Member for Nottingham East that neither “supply” nor “consumption” are ideal words, and we will therefore look at the issue. There we go—the magnanimity of government.
However, I will not give way on the second amendment, because the Money Advice Service has been clear about its remit of providing services to all income groups, and an explicit focus on one group would be to the detriment of that broader remit. I have been keen to ensure that debt advice forms part of the Money Advice Service’s remit, because that sends the clear signal that its role is not limited to providing advice on savings and investments, but should include helping people who are in debt. Although debt is not the prerogative of one particular income group or another, it shows that we have a holistic approach towards all types of incomes and financial issues.
Although I agree that the Money Advice Service should have a role in the co-ordination of debt advice, I fail to see the need for yet another agency to look at the delivery of such advice when there is already an extremely good agency that delivers debt advice on the ground and has a proven delivery model. I do not see the point of setting up a new agency to duplicate that.
The hon. Lady was a former citizens advice bureau manager and has particular expertise in this area. She must, however, bear in mind that the Money Advice Service is taking over the function already carried out by the Department for Business, Innovation and Skills of allocating funding for face-to-face debt advice services and others. Under the new arrangements, rather than such services being funded by the taxpayer, as they were under the previous regime, financial services businesses will fund the debt advice, which I think is a measure of fairness. Those who benefit or profit from the provision of financial services should also pay towards educating people and helping them to tackle their debt. That is a well-rounded solution. The Money Advice Service will work with agencies that already provide debt advice, provide funding, and ensure that we get the best bang for our buck.
It is a positive move for the Minister to say that he will look at the point about drafting, and at whether the consumer financial education function should include
“promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services.”
Our amendment proposes the words “supply and consumption of”, but the Minister is unsure about the definition of “consumption”, and I take his point. It might suffice to delete “the supply of” and mention only the advantages of a particular kind of good or service. I feel, however, that we are almost on the verge of some degree of momentous cross-party concession from the Minister. By the way, I think it is a sign of the integrity and professionalism of any Minister on a Bill Committee occasionally to show some flexibility and latitude about the 300-odd pages of a Bill. [Interruption.] Well, when I was a Minister I thought it important to show that the Minister in Committee has the authority, if he or she desires, to make a concession in response to a debate. I am sure that the Minister has the authority to make concessions, should he wish to. He has been dangling a carrot before us, and in that spirit I am happy to withdraw amendment 80.
However, I cannot help him so much with amendment 81. It is regrettable that he says that the mention of one group or another would somehow cause detriment. We are talking about members of the public on lower incomes—that is not one group or another; it is the people in greatest need, and the most vulnerable in society. If they have debts or credit arrangements, have been subject to fraud, or are affected by any issue that might come up in a regulatory context, the loss of a few hundred pounds, which might be bearable to us, could be catastrophic for them, and it is more than necessary to give that a special emphasis.
It is therefore doubly important to put emphasis on the Money Advice Service. I do not say that lightly, because although we wish the service well, it has not yet shown sufficient attention to the most vulnerable people in society. A website-based advisory service does not quite cut it; it should be more focused and detailed. I know that members of the service will be listening to the debate, and taking on board some of the concerns, and I look forward to their doing so.
To underline the importance of the matter, I intend to press amendment 81 to a Division. As to amendment 80, I beg to ask leave to withdraw the amendment.
The amendments are minor and technical. In the draft Bill published for pre-legislative scrutiny, schedule 3 was split into two parts. That is no longer the case, so amendments 124 and 125 are needed to reflect that.
Paragraph 16 of proposed new schedule 1ZB of the Financial Services and Markets Act 2000 currently includes, in the list of the PRA’s legislative functions, a reference to section 328 of FSMA, which concerns directions relating to the general prohibition against members of professions, such as lawyers and accountants, carrying on regulated activities without permission under part 20 of FSMA.
By virtue of the amendments being made to part 20 by schedule 16 to the Bill, members of the professions will be able to carry on only those regulated activities that are regulated only by the Financial Conduct Authority under part 20. A lawyer or accountant who wants to carry on PRA-regulated activity will have to become regulated by the PRA. In the light of that, only the FCA will have an interest in giving a direction under section 328. Amendment 119 therefore removes section 328 from the list of the PRA’s legislative functions.
These are pretty uncontroversial changes. I would, however, just like to repeat how much we regret the fact that the Bill has not been written from first principles, but has essentially cut and pasted large chunks from the Financial Services and Markets Act 2000. I suspect that a lot of the drafting changes come from things not having been spotted in that cutting-and-pasting process.
This is a very difficult Bill to navigate; it does not make for a scintillating Committee experience, and it does not flow particularly well from time to time. However, it is important that we accept the Government’s admission that they have made mistakes, and we are happy to support the amendment.
This is a significant clause; indeed, clauses 5 and 3 are probably the two most significant clauses in the Bill. Clearly, there has been a lot of debate about clause 5, including on a significant number of amendments. That reminds me that one can look at a Bill on Second Reading and perhaps take it at face value, but that it is quite possible to change one’s opinion about its strengths or weaknesses having reflected on it and scrutinised it in Committee. However, I have always had misgivings about the Government’s preferred route of twin peaks regulation, as they call it, or a quartet of regulators, which I think is the more accurate way to describe it.
It was incumbent on the Committee to try to improve the drafting and substance of clause 5. We spent time looking at four areas, and at whether the provisions would be passable. First, there is significant concern in wider society about the levels of consumer protection; indeed, the Chancellor of the Exchequer answered questions on that subject at Treasury questions earlier today. Naturally, therefore, we wanted to test the Government’s view on these issues in Committee. We sought to introduce amendments dealing with whether firms would have an obligation to act honestly, fairly and professionally in the best interests of consumers. In particular, we talked about some of the professional competencies and characteristics that we wanted changed in the new regulatory arrangements.
We tabled other amendments to ensure that the regulatory perimeter was drawn in such a way as to catch many of the concerns of consumers in our constituencies about issues such as claims management companies. Another issue, which my hon. Friend the Member for Makerfield knows about, is debt management companies and debt adjustment service companies. In particular, amendment 87 dealt with the transfer of high-cost credit regulation to the FCA. We needed to make improvements regarding the costs of high-cost credit, the duration of its availability and the roll-over arrangements—issues that even the Government now recognise have to be tightened up. However, there was not really enough acceptance in the debate of the need for action to be taken as soon as possible, particularly by the FCA.
Although the Minister could not quite make himself say that the FCA would be a consumer champion, the hon. Member for West Suffolk did, and lo, the Chancellor of the Exchequer today also said that the FCA would be a consumer champion. So I hope that the Minister will now adopt the party line and also accept that, if the FCA is to be a consumer champion, its powers and role need to be improved.
One of the most crucial things that is missing from clause 5 is a more explicit extension of the fiduciary duty of care. I assumed that in some aspects of financial services provision, discretionary asset management in particular, the common law arrangement was that the fiduciary duty applied. The Minister could not quite bring himself to confirm that in debates on the amendments. We tried to push that point, hoping that it was not massively controversial, but it was rebutted. We proposed other changes as well.
The improvements that we need to corporate governance and the stewardship of corporate Britain were also raised during the debates on amendments to clause 5. My view is that there is a hole in the clause 5 provisions especially in relation to the Financial Reporting Council stewardship code and the UK corporate governance code. Both could have been brought much more to the fore in a clause that refers to prudential regulation as well as consumer protection, yet the Minister, despite the Prime Minister’s assertions that we had to do something about all these things, and the various books that have been written by hon. Members, has included nothing in the Bill.
The third big omission—we are talking about things that are conspicuous by their absence—related to big society issues. We wanted to be helpful to the Minister. We take with a pinch of salt some of his claims that the Government care for this big society—civil society—and want to see it flourish, but when we tried to get him to take action to make the agencies have regard to social finance and social investment, all our attempts were rebuffed. The Minister said that that would be special pleading and it would be detrimental if we focused on one area at the expense of another. It was a big mistake. Many organisations outside looking at clause 5 are simply saying, “Why haven’t the Government taken the opportunity to make those changes to that arrangement.”
Our fourth area of significant concern is the sheer cost, potential duplication and administrative burden and complexity that the creation of separate agencies might produce. I could go along with the Minister’s architectural logic if he had put in place certain safeguards about avoiding duplication and ensuring co-ordination in the agencies’ work. I am at a loss to understand why the Minister would resist such changes.
So for those four reasons—mostly to do with omissions in clause 5—I am in a dilemma. Do we let this clause go through? I am certainly not inclined to vote for it. Or should we take the opportunity in Committee to put down a marker in the hope that on Report the Minister will make a few improvements in it? Well, we might get the occasional drafting change; I think that we have melted some of his icier moments around the edges, but whether we will get any substantive changes to clause 5, I am not sure.
So I am starting to think that Opposition Members might need to vote against clause 5 just to send the message that it is a substandard clause and it is not drafted correctly. We will wait to see what comes back on Report, but for the time being it has too many problems to leave it as it stands.
I want to make a few comments about this important clause. In general, I am extremely supportive and think that it makes great strides forward. I hope, therefore, that the Minister will take my comments as counsels of perfection rather than criticisms of the strides forward achieved by the coalition.
Some of the Opposition amendments relate to payday lending and debt management, and Opposition Members pushed the Minister to accept amendments on subjects that are currently under review by the Office of Fair Trading. I welcome that review, and I am keen for the Committee to see its findings when they are produced. It may be presumptuous to try to second guess what the OFT will suggest in its recommendations, but will the Minister assure the Committee that, where appropriate and after consultation, provision can be made in the Bill to implement any changes that the OFT may recommend?
Secondly, I want to address one small issue of ambiguity that was raised by the Consumer Credit Counselling Service—a valued organisation that provides free debt management services. The issue relates to an intervention that I made this morning and to the function of the Consumer Financial Education Body, now the Money Advice Service. On page 37 of the Bill, proposed new section 3R(4)(f) describes the function of the Money Advice Service as that of
“assisting members of the public with the management of debt;”.
The concern is that that could be interpreted as the MAS offering a debt management service, which it does not. Will the Minister clarify that point for the record and agree that the function of the Money Advice Service is intended to be that of
“promoting awareness of the benefits and risks” associated with different kinds of debt services?
Thirdly, I wish to mention an issue raised by the Association of British Insurers concerning the PRA’s insurance objective as set out on page 25, lines 14 and 15 in proposed new section 2C. It is right for the focus of the insurance objective to be policy holder protection, but the implications of extending the objectives to cover those who “may become policyholders” are unclear. Although both the firm and the regulators have a clear responsibility to ensure the adequate protection of policy holders, it is not clear that any such duty will extend to the as yet undefined category of those who “may” become policy holders, or what the regulatory implications of ensuring adequate provisions for that class of person would entail. Will the Minister address that issue in his remarks? If the Government consider that to be a valid concern, perhaps a Government amendment could be tabled to leave out the words
“for those who are or may become policyholders.”
My fourth question for the Minister concerns proposed new section 2L and the duty to consider representations. The FSA is required to explain to the panels where it disagrees with any representations made, but I am unclear why the same does not apply to the PRA and why we are not treating the PRA in the same way as the FSA.
Part 2 on page 15 includes amendments to the Financial Services and Markets Act 2000. Does the Minister agree that the legislation should encourage explicitly the FCA to seek to maintain and extend consumer access to financial services that meet their needs? When making regulatory decisions, we want the FCA to assess the impact of them on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products and also on financial advice. In the absence of such a requirement, there will be a risk that the FCA will always be steered towards a risk-averse regulation. We might see markets possibly being restricted to large groups of consumers to avoid any consumer getting sub-optimal products.
The coalition seeks to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case in the previous Government’s stakeholder products initiative.
Under part 2, new section 3B “Regulatory principles to be applied by both regulators”, could the Minister consider building into the Bill a requirement that within the regulatory principles, account should also be taken of the competitiveness of the UK financial services industry in setting its rules? We have had several discussions today and previously about competitiveness, but I hope that the Minister will agree that in this context it would enhance the service that the consumer should get by virtue of the passing of this Bill.
I want to make a brief contribution to this debate on clause 5 stand part. My concern relates back to the FCA as a consumer champion. My worry has been touched on by, among others, the hon. Member for Solihull and, of course, by my hon. Friend the Member for Nottingham East in amendments that were tabled by Opposition Members. I am very concerned about some of the outrageous interest rates that are offered by payday lenders and even by some of the other companies that go from door to door offering loans to some of the poorest and most vulnerable households. The loans can often be at rates of 1,000% or 2,000% APR. The FCA should be the regulator of such loans with their outrageous interest rates. This Bill is a good opportunity to have a cap on that kind of appallingly punitive interest rate, whether it is from the payday loan that goes from one week to the next or from the door-to-door sales people who work for the companies that we all know about because we hear about them in our constituency surgeries. Some are charging up to 10,000% APR interest rates, which surely should be made illegal. Surely the FCA could have a role in stemming that and in ensuring that the consumer is protected from this kind of outrageous exploitation. For that reason alone, I stand with my hon. Friend the Member for Nottingham East in suggesting that we should vote against this clause. I say that not because everything in this clause is bad, but because it is not quite good enough for what we want to try to achieve.
We have heard, both on this Committee and, as my hon. Friend the Member for Nottingham East said, at Treasury questions today, about the importance of the FCA as a consumer champion and how that should be an extremely important focus of its work. On that basis, it seems regrettable that some suggestions during this debate for strengthening that consumer role, be that defining more clearly how a consumer panel should be constructed and what different groups should be involved in that, or strengthening some of the other aspects of the work in terms of that end of the market where vulnerable consumers are particularly affected, have not been adopted. That is not to say that the provisions for that body are not good, but that they could be better.
Does my hon. Friend share my concern that during the transfer period, which could take two years or more, consumers will be left in limbo with nobody to champion them?
Before the hon. Lady gets carried away with her theme, can I repeat what I said when we debated this last week? The Office of Fair Trading will continue to take action in this area, right up until the point that responsibility for consumer credit transfers to the FCA. It will continue to take action on payday lenders and will continue to look at enforcement of the code. There will be no limbo where consumers are left unprotected.
I am pleased that the Minister is confident that that will be the case. As for the other matters that the clause does not include, because the Minister has resisted them, it is a matter of some regret that the proposal from Social Enterprise to strengthen the representation of that sector of financial services by, for example, having a social enterprise practitioners panel was rejected. This is a field of financial services that we all want to expand. There are a lot of warm words about how it should be expanded, but it may require regulation of a particular kind, and the opportunity was not taken to create a specific provision around a practitioners panel, which would enable the FCA to develop a regulatory regime for that particular aspect of financial services to ensure that it was neither held back by disproportionate or wrongly constructed regulation and could therefore encourage it to expand and play a larger part.
The Minister gave his reasons for not wanting to have the sort of panels that the FCA is going to have for the PRA. It is unfortunate that he has taken that view. Consumers have a strong interest in what happens with the PRA. Many of the practitioners want a practitioner panel in terms of the PRA, and the current panel that exists in terms of the FSA has also proposed that it should form part of the workings of the PRA. The advantage is that they would provide a forum, if we have a consumer panel as well, within which some of the proposals for roles could be pre-consulted on in a more thorough way than can be done simply by a widespread consultation. It is a pity that the Minister has not seen fit to adopt the advice and include it.
I hope that the Minister will not take up the suggestion made by the hon. Member for Solihull to consider making an amendment to the provisions in relation to the PRA’s insurance objective. The suggestion was made that the Minister might want to look at proposals from some parts of the insurance industry to remove the provision that says:
“The PRA’s insurance objective is: contributing to the securing of an appropriate degree of protection for those who are or may become policyholders.”
The sector has debated the words “or may become policyholders.” The reason that has been given—by the FSA, I believe—for including the provision is to prevent insurers who have a problem with a product that they are offering taking on similar business in future. I hope that the Minister will not accept the proposal to remove the provision, because it is not true that all insurers and those involved in the business agree that those words should be removed.
The Association of Financial Mutuals, which provides insurance business, supports the provision. It would oppose deleting it from the Bill, because it protects consumers from the continued selling of products that are already known to cause problems. The interests of future policyholders are extremely important. A considerable number of problems in the industry have arisen from the continuation of what amounts to various forms of mis-selling of policies, even after problems have come to light. I therefore urge the Minister not to listen to the amendment proposal. I am pleased that he has not yet been persuaded by the Association of British Insurers and others, otherwise he might have amended the Bill before.
I am not one of those people who bash the work of the FSA. I regard this as a continuation of the good work that it has done to clamp down on the scandal of mis-selling that took place throughout the ’90s and in the early 21st century. We are giving the FCA more powers than the FSA had. I hope that the FSA’s good work will be continued, but that does not stop me having concerns about the FSA.
I want the Minister to consider some omissions from the clause that we have not discussed, which relate to a number of financial products. First, are we answering the question: are consumers savvy when they are making decisions about buying products? My hon. Friend the Member for Leeds North East discussed doorstep lenders. When those people come to the door looking to make a sale, are they giving consumers the professional advice that they need? The answer is no.
The flipside is the situation in banks. I am always concerned about commenting on banks, because when I served on the Pensions Bill Committee and said something nasty about them, a number of financial magazines condemned me for doing so and said that I had made a lazy comment. However, I will say this: banks follow a sales model—there is nothing wrong with that. They have to make a profit because they are private businesses. I am worried, however, that people walk into banks and staff are desperate to make a sale because their wages are based on bonuses. Are staff forgoing a duty of care to consumers? Are they more interested in making the sale than in finding the right product for those customers? I do not believe that the clause clears up that matter or answers those questions. Is there a duty of care on the professional to provide the right amount of advice? The provision fails to recognise that need. I hope that the Minister will answer my query.
Secondly, the hon. Member for Solihull mentioned the OFT investigation. The clause is not strong or clear enough about the roles of the FCA and the OFT. If, as my hon. Friend the Member for Leeds North East said, doorstep lenders and other unscrupulous companies— I say that in fear of journalists watching us and saying something nasty about me—will continue to be under the auspices of the OFT, there will be overlap. Will the Minister explain how we can clear the tension between the work of the OFT and the work of the FCA? It will happen, because they both will be dealing with consumer credit. I hope that, when he replies, he will refer to such issues.
In a previous stand part debate, I cast a no vote because I recognised the need to make new provisions and to learn the lessons of what has happened in the past few years and the lessons of what did not happen in response to emerging problems. However, if my hon. Friend the Member for Nottingham East tests the Committee and presses clause 5, as amended, to a Division, I will vote against it standing part because it is such an inadequate clause—for all the reasons we highlighted when describing the various amendments we tabled to it. Even if the Minister wanted to reject the amendments, he could have acknowledged that adjustment was needed either in respect of the clause or elsewhere in the Bill. If he had picked up several of the points that were made, we could have supported the clause proceeding untested, without it being pressed to a Division.
Clause 5 under the Bill spans 24 pages. It also incorporates many other references not only under schedules, but other legislative provisions. Its content is very wide. Yet it omits significant detail and fails to clarify itself from the point of view of practitioners who will be affected by the activities of the different regulators and in respect of the duties of consideration that would be owed to consumers. Duties should be owed by both regulators, but we have heard from the Minister that they will apply to only one regulator.
If such a brand new vision is about offering us articulated regulation to take account of different market factors and different services and products, I am still at a loss to understand how, within the regime of articulated regulation, the consumer interest counts only in relation to the work of one regulator, when clearly the work of the other regulator will have a significant impact on consumer needs and should work to the benefit of consumer interests. The idea of leaving one regulator to be responsible for what the other regulator does seems to be a recipe for confusion and, indeed, failure. That is why I and others tabled amendments aimed at clarifying matters and anticipating the problems that are likely to arise.
We find under clause 5 and other provisions to which it alludes many other problems, such as requirements for the PRA to have power to override the FCA on various issues, but we do not find a countervailing measure to allow consumer interests to make their way and voice themselves to the PRA, and for it to hear them. That is a fundamental failure, not least given that the PRA will be dealing not just at the high level with matters that are remote and to do only with issues that people will discuss around rarefied dinner tables in the City of London, but with matters that will be close and intimate to people in my constituency, such as credit unions. The idea that it would behave in a way that was completely detached, and that it would have to be protected from any approach by a consumer voice, seems somewhat bizarre.
Someone like you, Mr Howarth, who has served in ministerial office in Northern Ireland, will be familiar with the comforting counsel that, “If you aren’t confused, you do not understand”. However, in relation to the Bill, we should look at that the other way round: people are confused—as am I, as a legislator, not only by the clause but by the Minister’s arguments—but that does not mean that we do or will, in practice, understand. Some arguments made for rejecting amendments to the provisions are almost like a Homer Simpson nightmare: just when we think we have reached the conclusion, we find ourselves back in something completely different and all the old problems and issues open up again. The clause is bad because it offers a model that could be made good, but it needs more work and more specifics to be built into it.
Earlier, the Minister told the Committee that just because regulation is expensive does not mean that such regulation would not be worth it, in relation to what it saves the consumer and the taxpayer and, by avoiding systemic risk, in relation to the public interest. Equally, I say that, just because some of the amendments that the Minister has rejected might have made the provisions slightly longer does not necessarily make them worthless. They would have provided clarification, and they would have offered a basis for confidence for practitioners in the financial services sector, clearer guidance to various professional interests and bodies and a measure of assurance and confidence to consumers. They would have been worth while.
I hope that the Minister agrees that the clause, like other provisions in the Bill, needs more work. More adjustment is needed to take account of existing concerns and the circumstances that are likely to arise. The Minister’s best argument for rejecting amendments has been to say that what the FSA is doing is good enough, but the Bill is meant to be about the replacement of the FSA and ensuring that we do not have to rely on any of its inadequacies or iniquities and all that went with that regulatory regime. It is not enough to tell us to carry on with what we have and what we know. If the Bill is to provide a brave new world of regulation in which everyone will know where they stand and who they should talk to if problems are identified—in which regulators will know when to talk to each other, and everyone will know which regulator to talk to and that they will have a voice on the various panels—more needs to be done to make the working model better. When a problem arises, calls will be made in the House and elsewhere for the Treasury to clarify which regulator is looking at the problem and for it to consider making changes to the provisions.
Clause 8 makes provision for the Treasury to introduce all sorts of new regulatory legislation, including powers to change primary legislation. In all likelihood, some of the provisions about the PRA that will be changed are those in clause 5. On clause 8, the Government’s best defence is that they will need reserved powers for the Treasury to clear up the mess, inadequacies, inconsistencies and incompatibilities built into clause 5. The answer is not to have sweeping powers that can be used capriciously, and will probably create a lot of market uncertainty. The answer is not to give capricious powers to the Treasury, but for the Committee, and the House more generally, to do the job of discharging the Bill as our best legislative effort now, given all that we have experienced and all that people are likely to experience.
I was just looking at clause 8 to find out which new sweeping powers we had given ourselves. I am not sure that they were quite as sweeping or as wide as the hon. Gentleman thinks. If we ever get round to a stand part debate on clause 8, we shall probably return to those provisions.
I know that Opposition Members are frustrated at not getting more amendments through. Perhaps I am not as collaborative as they would like, but I remind them that the Bill has been through three rounds of public consultation. We started the process in July 2010. Many of the big issues have been resolved, and many pieces of low-hanging fruit were picked up in debate. The pre-legislative scrutiny Committee did a good job, and we have reflected many of its proposals. The Treasury Committee conducted three inquiries, so there has been a rigorous process. Indeed, the fact that the most excitement this Committee could generate on clause 5 was about who should be on which panel may demonstrate that some of the bigger issues that underpin the clause passed by without much comment.
There are some radical changes in the measure. There are much tougher objectives for the FCA and a very clear focus for the PRA. There are some interesting powers that Opposition Members have not really touched on—to my surprise—but that may reflect a degree of consent for the broad outline of the Bill.
I shall deal with some of the comments. In debates such as this, I always think of the American baseball player, Yogi Berra, who said, “It’s déjà vu all over again.” We have discussed a number of points—
I was listening the first time, and the second time—and the third time. I even listened the fourth time.
Let me deal with some of the points that are new, or where I feel that some clarification is required. My hon. Friend the Member for Solihull referred to debt management as one of the objectives of the Money Advice Service. Let me be absolutely clear: the provision caters for the Money Advice Service’s new responsibility for debt advice. I do not want to see the Money Advice Service offering debt management plans; there are plenty of people who can do that. The role of the MAS is to commission free debt advice, not necessarily to provide debt management plans. That is beyond its scope. I hope that gives some clarification.
My hon. Friend raised a point about the PRA that I am surprised did not have more legs at an earlier stage. She said that the PRA should have regard to representations, and of course proposed new section 2L explicitly provides that the PRA consider the representations made under new section 2K. Those are advisory arrangements and it is right that the PRA should be able to establish its own arrangements for getting the best advice, as the Joint Committee agreed. The PRA will obviously consider the advice it commissions and the representations it receives.
My hon. Friend raised an interesting point about the PRA’s with-profits objective, which the hon. Member for Edinburgh East picked up on too. One of the things we are trying to do across financial regulation is to be forward-looking. We are seeking to replicate some of the forward-looking aspects of the consumer definition that appears in section 425A of the Financial Services and Markets Act 2000. Going back to with-profits policyholders, the reference to potential policyholders reflects the fact that a forward-looking prudential regulator should not just be considering the interests of current policyholders without thinking about how the firm’s treatment of existing policyholders would impact on policyholders in the future. For example, a prudential regulator should not allow an insurer to treat its current policyholders in such a way that in five years’ time, the firm goes bust to the detriment of those who become policyholders in that period.
In the regulation for with-profits policies, future policyholders need to be taken into account when distributions to current policyholders will have a direct impact on the interests of future policyholders. A point that the parliamentary ombudsman raised in her report on Equitable Life was that the FSA did not adequately protect new policyholders, once Equitable Life was in serious difficulty, so it is important that the PRA looks at both existing and future policyholders. I hope that, with that forward-looking approach, the PRA is less likely to make the kind of regulatory mistakes that occurred with Equitable Life, to the detriment of many thousands of people.
Indeed, and the Minister and I battled each other across the House during the passage of the Equitable Life (Payments) Act 2010. Does he think that if this regulatory arrangement had been in place at the time—this is a very theoretical point—it could have prevented the scandal of the with-profits annuitants who have suffered so much at Equitable Life?
It was not only the with-profits annuitants who suffered; anyone who took out a with-profits policy with Equitable Life post-1992 did, according to the ombudsman’s findings. I strongly reject the comment by the hon. Member for Foyle that it is just business as usual, because the Bill gives the regulator powers and objectives for consumer protection that are significantly stronger than those of the FSA. The regulator will have tools to help tackle some of the problems that it would have faced with Equitable Life. For example, if it had identified a flaw in the design of a policy, the product intervention powers—which we may debate later—could have been used to stop policies being mis-sold, in the same way that they could potentially have been used to stop PPI policies being mis-sold.
We have sought to learn and respond to the lessons of the past, while at the same time ensuring that the regime is sufficiently forward-looking to try to deal with the new challenges that we will see in financial services. However, I think that some powers and objectives in the Bill would have helped with Equitable Life.
To clarify, in case the Minister misrepresents me, I have not dismissed the Bill as simply being about continuity, FSA, or anything else. What I have said is that the Minister’s argument against all the amendments is that they are not needed, because the FSA has been doing things in a particular way, and that will continue into the future. The contradiction is in the Minister’s arguments and not on the part of those who have been tabling amendments.
I understand more fully the reasoning behind this idea about policyholders in the future, but I have a twinge of concern about the area relating to undefined categories of policyholders. We cannot forecast with a crystal ball exactly what is coming down the road. The concern of the Association of British Insurers was that they are being given responsibility for future events that they cannot necessarily predict.
We are not crystal ball gazers, and no one has a perfect view of the future, but it is important that in thinking about regulating the with-profits business, we pay some regard to the interests of future policy holders, so that business is not run solely for the benefit of current policy holders. With-profits funds build up over a period of time. They are, obviously, of interest to policy holders, but the businesses are long-term businesses. Anyone running a long-term business needs to look ahead to future policy holders, not just those currently on the books.
On access, to which my hon. Friend also referred, it is important that we see access as a social policy issue and not simply one for the regulator. She made a point about the FCA’s approach to stakeholder products. We need to ensure that proper protection is in place for consumers, but I can advise her that a representative of the FCA is sitting in as an observer of the simplified products group that Carol Sergeant is chairing on our behalf. It is helpful to have the FCA’s engagement in that process.
My hon. Friend also touched on competitiveness, which we have debated. It is important to avoid the mistakes of the past. There is a sense that regulation has been watered down under pressure to deal with issues such as international competitiveness. It is much better to ensure—this is a point that I make frequently in other circumstances—that regulation is proportionate and that where a problem is identified, the regulatory response gets the balance right between costs and benefits. That should be a key part of regulation and should apply not just to the FCA but elsewhere.
The hon. Member for Nottingham East said that there was nothing in the Bill about co-ordination, but there is quite a lot. Effective co-ordination between regulators will be essential to ensure that they can deliver their statutory objectives in an effective and timely manner. The Government have proposed a number of mechanisms to ensure effective co-ordination between the new regulatory bodies, including cross-membership of boards between the PRA and the FCA, a statutory duty on the PRA and FCA to co-ordinate the exercise of their functions and an obligation to prepare a memorandum of understanding setting out how the statutory duty will be delivered. For key regulatory processes such as rule making and enforcement, the Bill includes hard requirements on legislators to consult with each other.
Mechanisms are in place to ensure that the PRA and FCA will be held accountable for how effectively they have co-ordinated, including a requirement for the MOU to be reviewed annually and for that review to be laid before Parliament, a requirement for the FCA and PRA to include in their annual reports an account of how they have complied with their duty to co-ordinate their actions over the year and, of course, the engagement of the NAO, a significant advance in the regime on financial accountability compared with the regime that we inherited.
Of course, statutory requirements are not enough in themselves. A collaborative working culture has developed between the regulators, as we have seen in the current period of shadow running. The FCA will begin the process of dividing its prudential and conduct-focused responsibilities.
The hon. Member for Islwyn discussed the duty of care. The Bill establishes a new framework in which the regulators—not just the FCA but the PRA—will impose requirements on banks and other firms reflecting consumers’ interests in being provided with safe, stable and appropriate financial services. The concept of a duty of care is the foundation of the regulatory system, and it is recognised at every level in the Bill, from the regulators’ top-line objectives to the specific tools that I hope we will discuss before we conclude our consideration of the Bill in Committee, such as the FCA’s power to ban products. As we debate the Bill in more detail, we will see how that duty ripples through.
The Bill gives the power for the transfer of regulation from the OFT to the FCA, and it will be clear who is in charge up to the point at which the cutover takes place. We will have to go through a consultation process on the transfer to ensure that the regulatory perimeter and type of regulation are right, but from a consumer’s perspective, until that cutover takes place, the OFT is very much in charge of regulating consumer credit.
There have been calls for the FCA to have all sorts of additional powers on consumer credit. The FCA’s current suite of powers will be sufficient to address consumer credit issues, but we should not prejudge the consultation process by introducing powers that are perhaps not appropriate or right.
The hon. Member for Leeds North East referred to capping the cost of consumer credit. Let us be clear, as the Chancellor was earlier, that the previous Government looked at consumer credit on several occasions and each time they rejected a cap on interest rates, because they recognised, as did many consumer bodies, that it could force people into the arms of illegal money lenders, and I do not think any of us want to see our constituents being forced into the arms of illegal money lenders.
BIS has commissioned the university of Nottingham to look at the total cost of credit, but let us not pretend that there is some sudden dividing line between the parties, because the previous Government adopted a similar position. I remember, on Report of the previous Financial Services Bill, a member of the previous Government argued very persuasively against a cap on interest rates.
A number of hon. Members on both sides of the Committee have raised that point. The review commissioned by BIS is looking at the total cost of credit, rather than looking simply at interest rates.
Clause 5 is an important part of the Bill, and we have addressed a range of issues in this clause stand part debate and in our consideration of the amendments. I remind Opposition Members that the clause has been through a thorough process of public scrutiny, and it has been a thorough process of legislative scrutiny in the past few sittings of this Committee.
My mind is never closed to amendments when a good argument is made. We have suggested that we will consider some of the wording of the clause, but some of the big issues have been resolved in earlier rounds of consultation. Those issues have not really been touched on in the past few sittings, which is a sign of consensus, and I am surprised that the hon. Member for Nottingham East seeks to divide the Committee when no big issues of principle are at stake; he is seeking to divide the Committee on relatively small matters.