Clause 6 - Extension of scope of regulation

Financial Services Bill – in a Public Bill Committee at 5:30 pm on 6th March 2012.

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Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clause 6 contains a set of measures relating to the scope of regulation and the extent of regulated activities. The Bill aims to make a number of changes to the regulatory perimeter, some of which, including the regulation of consumer credit issues and the transfer of responsibilities from the Office of Fair Trading to the FCA, have already been debated by all hon. Members, and those shifts are welcome. However, the Minister will know that serious reservations have already been expressed about the timing of the transfer of responsibilities to the FCA, the resources that the OFT currently has for overseeing some consumer regulation issues, and the extent to which those resources will be transferred or made available to the FCA.

Consumer credit regulation will create a significant volume of extra work, albeit at perhaps a smaller level because of the volumes concerned. Can the Minister set out what that estimated volume change is likely to be? What are the numbers of regulated persons who currently fall under the ambit of the OFT who will now fall under the auspices of the FCA? It would be good to get a sense of the scale of the number of regulated persons and firms that are likely to come under the FCA’s remit. I would also be interested to hear what the situation will be in terms of the regulatory resources. Perhaps the FCA has said how it will expend its resources on such issues. I appreciate that transfer issues are still in train and under discussion, but he must have an estimate of what that is going to be. Although we want coherent regulation, we also want to ensure that the new regulator has enough ability to capture properly some of the concerns that people have.

The Minister knows—we debated this earlier—that the transfer of credit reference agencies regulation is also a positive step. I think there are only three credit reference agencies in the UK: Callcredit, Equifax and Nottingham’s finest, Experian. They are important bodies, currently all subject to licences from the Office of Fair Trading. Certain essential information about those firms needs to be provided to the OFT as part of the licence application process. The agencies are required to provide consumers with credit files at a cost of £2 each, and they need to abide by certain regulatory standards. There are also careful rules regarding the data protection requirements on such bodies. It would be useful if the Minister could say how he thinks credit reference agency processes are likely to be affected by the transfer.

I am particularly concerned about what is known as the credit repair industry. It involves companies that advertise to an individual who has perhaps had a county court judgment or may have had to default on a particular credit agreement, for example by missing the occasional payment. The companies would say, “For a fee or a certain arrangement, we will repair your credit rating.” Will credit repair companies and activities come within the regulatory perimeter? I think they are quasi financial services activities that probably merit attention in the Bill.

I would be grateful if the Minister specifically addressed those points on clause 6.

Photo of Lorely Burt Lorely Burt Chair of the Liberal Democrat Parliamentary Party 5:45 pm, 6th March 2012

I have just a small question. I hope the Minister will forgive me if, during our long deliberations, it has already been covered.

I want to check on the status of claims management companies. As I understand it, they currently come under the Ministry of Justice. Due to the large number of financial services complaints that such companies are subject to, would it not be more appropriate to add their activities to the list of regulated activities in the clause?

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

On the Danny Blanchflower principle of equalising before the other team scores, I want to put a couple of questions to the Minister on clause 6 and wider provisions regarding consumer credit, which I would otherwise have done by way of intervention.

Will the Minister clarify whether the provisions and the intended changes from the OFT to the FCA have taken account of the different situation in Northern Ireland? Significant parts of consumer regulation in Northern Ireland are listed as devolved matters, but the OFT has been active on several matters that have straddled devolved and non-devolved areas. We have a situation in which we could still end up with a corner of confusion. After this change in regulatory structures in which many areas of confusion and untoward gaps will be sorted out, we could still end up in a difficult twilight zone in and around aspects of consumer credit. While we know that steps are being taken to sort out some of the outstanding regulatory issues that have affected credit unions in Northern Ireland and prevented them from providing a wider range of services, we can also see that credit unions here are benefiting from some of the new opportunities that have been provided by the passing of the recent legislative reform order. As some  of the areas covered by the legislative reform order are deemed to come under the heading of consumer credit, we are being told that that will be for the Assembly. There seems to be some confusion on the part of the Assembly or the Assembly Committees about how far that is truly or strictly remitted to them as a devolved matter. Certainly, those things may not be remitted to them solely as exclusively devolved matters.

Under clause 6, there are some specific references to dealing with issues that are raised in the context of Scotland. If clause 6 covers the future transfer of responsibility for regulating consumer credit from the OFT to the FCA, we need to know whether the Minister has discussed the implications with relevant Ministers in Northern Ireland. It would be odd to leave a difficult area in relation to consumer credit, with so many products and players operating online and in many different ways and advertising on television. Is there a more sensible and straightforward way of dealing with some of the questions that will arise in the context of Northern Ireland or with some of the activities that may or may not relate to Northern Ireland? Will the Minister indicate where in the OFT’s discussions, in the planning on the part of the FCA, and those who will be undertaking that, and in meetings between the Treasury and the Northern Ireland Executive, particularly in the Department for Enterprise, Trade and Investment, these considerations have been factored in and are the subject of any ongoing planning?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The clause facilitates the transfer of consumer credit activities currently regulated by the OFT to the FCA. Let me respond to a couple of points. Over the coming months, the Government will work with the FCA, the OFT and industry and consumer representatives to design a model of FCA regulation that reflects particular characteristics of the consumer credit market and remains proportionate to the different segments of the market. Once that model has been designed, the detailed provisions for the transfer will be subject to impact assessment and approval through the affirmative procedure by both Houses of Parliament. In the meantime, the OFT remains responsible for regulating consumer credit and will continue, as I said earlier, to tackle the current practices that have caused concern to drive up standards in the market.

The exact timetable for the transfer will be subject to the passage of the Bill and the wider changes to the consumer and competition landscape. The amount of resources that the FCA devotes to consumer credit will depend on the nature of the regime. I expect the FCA to be able to raise the fees necessary to cover the additional cost that it will incur.

Of the regulatory firms that could come within the remit of the FCA—a point that the hon. Member for Nottingham East made—80,000 are licence holders at the moment. The precise number to be transferred will depend on the nature of the model chosen. For example, if the appointed representative model is chosen, that will make a big difference to the number of authorised persons. The hon. Gentleman raised the issue of credit repair companies. Clause 6 enables a full transfer of customer credit activities to the FCA, and we plan to bring credit repair companies within the scope of the Bill.

My hon. Friend the Member for Solihull mentioned claims management companies. We need to remember that claims management companies are not financial services businesses. Some of the claims that they deal with relate to financial services, but not entirely. Given that the Ministry of Justice has undertaken a review of claims management companies and their regulation, and is introducing measures to deal with that, it is appropriate to let those measures run their course rather than create more disruption in the industry and move across to the FCA.

The hon. Member for Foyle raised the point about how the measure would apply in Northern Ireland. I will come back to him on that. The correct principle is to ensure that people living in Northern Ireland have the same protections as those living in the rest of the United Kingdom. That is exactly why, for example, Northern Ireland credit unions are being brought within the scope of FSMA. Depositors with the credit unions did not have those protections. Indeed, they did not have some of the opportunities. That is the general principle, but we will come back to him on the detail.

With those comments, I hope that the Committee will approve clause 6.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.