‘(2) A designated consumer body may make a complaint to the PRA that a feature, or combination of features, of the market for with-profits insurance policies is, or appears to be, significantly damaging the interests of consumers.’.
Clause 40 deals with significant issues of consumer protection, and the amendments in the group are designed to address the designation of the Prudential Regulation Authority as a recipient for super-complaints concerning with-profits policies. At present, there is no mechanism for making a super-complaint regarding the market, despite the problems in the past. The Committee will be aware that, unusually, the Minister has decided that the PRA, which is not ordinarily a conduct regulator, should have responsibility for the conduct regulation of the with-profits sector. Twenty-five million customers are affected by that area of the market, and there are £330 billion-worth of with-profits policies in the market, so there are significant consumer questions for the country at large and all our constituents.
Transferring the responsibilities for conduct to the PRA without simultaneously giving consumer bodies the ability to call conduct issues to account in the manner of a super-complaint, could be a serious mistake. I do not understand why the Minister would design an arrangement that would prevent the voices of consumers being properly explored in the way that they ought to be given the size of the market.
Placing the regulation of with-profit policies in the PRA seems to exclude the possibility of super-complaints about them being made. Taking into account the chequered history of some of those policies and the regulatory failures, we would have expected that the Minister would take the opportunity to improve the regulatory arrangements and ensure that the customer voice is heard. I am sure that he understands the logic behind the amendments in the group, so I will not labour the point.
We discussed consumer representation on the PRA in respect of with-profits policies on amendments 66 and 67 and clause 5. As with the previous amendments, I am afraid that I am sceptical that the amendments tabled are the right way to ensure appropriate consumer representation. However, I agree that the super-complaints power should be wide enough to cover complaints about with-profits policies, and clause 40 is sufficiently broad to allow that.
I do not agree that the PRA should be designated as a recipient of the super-complaints. The FCA will be the best equipped of the two authorities to receive super-complaints on with-profits policies; it will have the consumer and competition-focused objectives and the expertise and established administrative capacity to process and respond to incoming super-complaints effectively. In those cases where the FCA decides that the appropriate response to the super-complaint is to give advice or information to the PRA, the FCA will have to make that clear to the respondent in its response.
There is a mechanism for super-complaints about with-profits policies to be made to the FCA, and the FCA can give information or advice to the PRA on the regulation of such policies, but that does not mean that consumer groups cannot raise complaints about them with the PRA. The FCA is best placed to respond to the consumer protection and competition problems raised by super-complaints.
I do not understand. I am slightly confused by the logic. The Minister is essentially saying that even though he wants to give with-profits conduct powers to the PRA, the process of super-complaint arrangements—I suppose this is one concession, which is welcome—should be allowed, but only to the FCA. Will there not be a problem, as the FCA is not actually the body with responsibility for making decisions about that regulation? He says that the FCA will be able to make representations to the PRA. Is that not a circuitous process? Would it not be far simpler to allow the super-complaint process to be made to the body responsible for regulating in that area? I do not see why he needs to bypass the arrangements in such a circuitous way.
It is right that the regulator with primary responsibility for consumer protection should receive all super-complaints. The FCA will have an established relationship with consumer groups and will have appropriate processes and procedures in place enabling it better to understand the context within which individual super-complaints are submitted. The structure is there. It is clear to me from my reading of clause 40 that super-complaints can and will include super-complaints about with-profits policy, but the measures are partly about the efficient and effective use of resources. The FCA will have the process in place to deal with super-complaints. It cannot just make representations, as the hon. Gentleman said; it can give information and advice to the PRA, which is much stronger. I think that that is the right balance. It is not a straightforward issue to get right, but our approach is consistent with how we want to deal with it.
I am sorry that the Minister did not take the amendment away to consider and chew over in a bit more detail. I also object slightly to the idea that the FCA is the body with primary responsibility and an understanding of the relationship with consumers when, in this particular area, he has carved out a responsibility for the PRA in respect of the conduct regulation of with-profit policies. It is not beyond the wit of the PRA to understand representations from consumers and so forth. I get a sense that the PRA is being built up as an aloof ivory tower of an institution that is not supposed to get its hands dirty with tiresome things such as consumers.
As ever, my hon. Friend manages to sum up succinctly a point that I would have taken many more words to convey. [ Interruption. ] The Whip agrees with at least that point of mine, which is something, I suppose.
My point is simple. It is necessary to have clear, simple, straightforward lines of accountability. Giving consumer bodies the capability to make super-complaints directly to the PRA does not seem excessively onerous on the PRA. It is not impossible for the PRA to understand consumer issues. It could certainly consult with the FCA if it did not recognise what a consumer looked like or found it difficult to talk to one in a particular way, but if the Minister carves out a responsibility for the PRA, he must accept the downstream consequences of that decision. Therefore, we ought to press the amendment.
These amendments relate to the super-complaints power and the ability of consumer organisations to make those complaints rather than a myriad of individual complaints having to be made simultaneously. Under the amendment, super-complaints powers can be granted only to bodies that genuinely represent consumers.
Amendment 127 seeks to nuance the definition of designated bodies to include the words “impartial and independent”. Amendment 128 seeks to change the definition of the term “consumer” in the Bill to include only consumers under the common definition of the term.
Under the Enterprise Act 2002, super-complaints can be made by designated consumer groups, such as Which?—the Consumers Association—and Consumer Focus, and are an excellent tool for raising issues of mass consumer detriment. That is something that the previous Administration introduced, and it has been a useful device. Significant changes and improvements have been made to defend the best interests of the consumer. As a result, I pay tribute to the Minister for his recent intervention in response to the super-complaint from Which? In deciding to ban excessive debt and credit card charges, he highlighted the lack of transparency and the high levels of the charges that cost consumers millions of pounds a year.
When the Minister first proposed making the FCA a recipient of super-complaints, he stated that such powers should be given to organisations that work on the front line with consumers and that often see evidence of significant detriment before the regulator.
In its report, the pre-legislative scrutiny Committee highlighted that by making the FCA a recipient of super-complaints, it would protect consumers from failing products and markets. However, under the Bill, the definitions of the concept of consumer are very wide. Crucially, the Bill states that a designated consumer body may make a complaint to the FCA that a feature, or set of features, is
“significantly damaging the interests of consumers.”
A designated consumer body could mean a body representing firms. Trade bodies, for example, could also argue that they are able to make super-complaints. Such a view is not in the spirit of the original intentions of those changes in the 2000 Act.
If we were to get into a situation in which super-complaint powers were used as a tool for industry representatives rather than consumer representatives, inappropriate representations could be made to regulators about concerns that might potentially affect firms rather than consumers. That would not be a proper use of the super-complaints procedure. A number of genuine consumer bodies are concerned about that; they do not want their capabilities to be diluted by broadening out the definitions in such a way. I am sure that the Minister will be aware of their concerns. The legislation must be tight enough to ensure that we do not fall into that trap and that we can defend the virtues of the current super-complaints arrangements as well as possible.
I do not have much to add. My hon. Friend has put the case succinctly. If the measure were to refer to trade bodies, I am concerned that the individual firm would be reported to the ombudsman, who may make a ruling. What may happen then is that if the company is unhappy it goes to its trade body which would then say, “Yes, we’ll go to the FCA and see if we can get a better result.” This ombudsman ping pong would not be in the interests of consumers at all. It may even water down the use of the ombudsman. I am concerned that it needs to stay with properly representative, independent and impartial bodies that represent consumers, who see enough complaints to take a justifiable view on whether the complaints are justified and whether a super-complaint is needed. It should not just be a vehicle for trade bodies to represent their members in a different way.
Indeed. I am happy to agree with the point that the hon. Lady has made. The super-complaints mechanism should not be available to bodies whose purpose is to represent professional businesses and professional investors. The problem we have is that, given the breadth of the definition of consumer in new section 1G, the drafting does not deliver the effect that we want, which is for this not to be used by trade bodies and professional investors. Therefore I will revise the definition of consumer in new section 234B so that it excludes representatives of authorised firms, to put the issue beyond doubt. Amendment 128 was tabled by the hon. Member for Makerfield so she should be commended. [ Interruption. ] It just shows what a sharp, short speech can do to change the Government’s mind.
On amendment 127, the designated consumer bodies should indeed be independent of the FCA. The Bill requires the Treasury to develop and publish criteria that it will apply in designating consumer bodies and that, rather than the Bill, is the best place to spell out in more detail what should be taken into account in deciding who should be designated. Through non-legislative means we are dealing with the point in amendment 127 and I have committed to come back, hopefully on Report, to amend the definition in new section 234B.
There is indeed a lesson there. Certainly if any of my hon. Friends wish to propose other amendments perhaps they should do so before the Committee stage is over. I welcome the Minister’s commitment to come back on Report. It is very positive that he wants to do that. It is not my place to withdraw amendments in the name of my hon. Friend, but I would be happy to do so, as I suspect she would be too, in response to the Minister’s willingness to consider the matter further. I beg to ask leave to withdraw the amendment.
(1) Part 131 of the Enterprise Act 2002 is amended as follows.
(2) The FCA may, subject to subsection (4) of section 131 of the Enterprise Act 2002, make a reference to the Commission if the FCA has reasonable grounds for suspecting that any feature, or combination of features, of a market for financial services in the United Kingdom prevents, restricts or distorts competition in connection with the supply or acquisition of any financial services in the United Kingdom or a part of the United Kingdom.’.”
These amendments need to go hand in hand because amendment 168 removes something from the Bill and amendment 172 substitutes something else. I may need to double check the line references in the amendment as they may be wrong. I will call them probing amendments just to cover myself. They relate to the power of the FCA to make a request to the Office of Fair Trading to consider in turn whether a case should be referred on to the Competition Commission. Our view is that the FCA ought to have the power to make reference directly to the Competition Commission on certain matters.
The pre-legislative scrutiny Committee made its views known in its report when it recommended that the Government review their decision on the FCA’s competition powers. It said:
“The FCA should be given concurrent powers alongside the OFT to make market investigation references to the Competition Commission. The FCA will need greater competition powers to achieve its recommended objective than is currently set out in the draft Bill.”
The Minister has already set out the competition objective that the FCA will receive. At the time, the Minister responded to the pre-legislative scrutiny recommendations by saying he did not feel there was a need to change the provision in the Bill that allowed the FCA to make that referral to the OFT and on to the Competition Commission. That is a pity, given that the financial services sector probably deserves to be treated in a similar way to other regulators, where they do have concurrent powers with the OFT. For example, Ofcom has a concurrent power with the OFT to make a reference to the Competition Commission, as do Ofgem, the Northern Ireland Authority for Energy Regulation, the Director General of Water Services, the Office of Rail Regulation, the Civil Aviation Authority and so on. It would not be excessive to allow the FCA to have a similar concurrent power, given that it is a fairly normal arrangement for regulators of other sectors and industries. Will the Minister explain why he has chosen to go down this particular route with the powers for the FCA?
This topic has triggered a significant amount of debate. It is a sign of the complexity of that debate that we have two different recommendations. The pre-legislative scrutiny Committee recommended that the FCA should have the concurrency power; the Treasury Committee said the case had not been made, and it should be reviewed. We ultimately followed the line put down by the Treasury Committee.
I shall explain a little why that is the case. I want to be clear about the respective roles of the two regulators. The FCA, as the lead regulator for the financial services, has been given a mandate to use its regulatory powers and expertise to promote effective competition in the interests of consumers. The OFT, as a central competition authority, has powers and expertise, for example, in relation to the enforcement of competition law, that can be used across a number of markets, including financial services. Both regulators have an important role to play in promoting effective competition. Clearly the FCA needs a mechanism to engage the OFT if it is to ensure that the OFT’s powers and expertise are effectively brought to bear in the financial services sector.
Let me be clear about how the FCA will be able to use its power of referral to the OFT in support of its new competition role—the provisions that this amendment would take out. The measure will not prevent the FCA taking the lead in addressing competition issues, but will respect the expertise and powers of the competition authorities. The FCA’s competition objective will require it to keep the markets it regulates under review. Of course, it may perform its own competition analyses as part of that. The FCA will set its own agenda for promoting competition in the financial services sector and will be able to identify issues that it considers may require intervention by the competition authorities. On an appropriate referral from the FCA the OFT may have the information that allows it to take action, for example to launch a market investigation reference, almost immediately. It will also be able to consider whether the Competition Act 1998 enforcement action would be more appropriate.
There are clear benefits to the referral mechanism in terms of enabling the OFT in its role as a central competition authority to bring its expertise and experience to bear in taking action to address restrictions or distortions of competition. Those are pragmatic arrangements that reflect the fact that the FCA will have no track record or expertise in making market investigation references or the capacity to enforce competition law itself. As such, it will be essential that it has a mechanism to draw on the expertise and powers of the OFT.
Turning to amendment 172 and the issue of who should be able to make a market investigation reference to the Competition Commission, the underlying concern must be with the quality of competition scrutiny and the regulation the markets will receive. Given the expertise and experience of competition law, and of the MIR process that the OFT will have, it makes sense for the responsibility for making a MIR to rest with the OFT. I have discussed the issue, in particular, with John Fingleton, the director of the OFT. In other areas where there are concurrency powers, the OFT has stepped back and allowed the sectoral regulator to fill the space. I am worried that it will suddenly step back from its involvement in the financial services sector before the FCA has carved out its role.
The OFT clearly has an important programme, such as following up the recommendations of the Independent Commission on Banking, which we talked about earlier. I am sure that the Committee is aware that the Joint Committee, which scrutinised the Bill, recommended that the FCA should be given concurrent MIR powers. The Treasury Committee suggested that the case had not been made.
I have thought carefully about the matter, and it is not easy to determine. These are relatively uncharted waters for the FSA, and we want it to take an important role in promoting the competition of financial services. However, at the moment my judgment is that we should leave the MIR powers with the OFT, but should review the matter when the competition powers of the FSA are bedded in, and once there is a track record.
As an addendum, the hon. Member for Nottingham East referred to some of the sectoral regulators with MIR powers. They also have the powers to enforce the Competition Act 1998. The FCA does not have those powers, so it is not right to say that, by giving the FCA MIR powers, it will align it with other sectoral regulators as it does not have powers under the Competition Act 1998.
I am glad that the Minister is thinking deeply about such questions. That is positive, as is the fact that he will keep the matter under review. That is the least that we should expect, and letting the issues bed in would be one way to achieve it. I am still not entirely convinced that now is not the opportunity to step in to create a Financial Conduct Authority that has the full suite of powers necessary to do the job expected of it when representing consumers, and to ensure that competition is properly enforced.
The hon. Gentleman said that a debate is going on. We should probably side more with those who would give the FCA the powers so that we have one organisation tackling significant market issues such as the PPI debacle. That would allow us to get on and deal with the difficulties without the substantial additional delay introduced through circuitous referral to another body. There is some virtue in putting the FCA in a shape in which it can step up to the plate and have the in-house capability properly to understand market investigation issues. Faster implementation of remedies would reduce harm to consumers and would make for better decisions in the market more generally.
At least the Minister has said that he wants to keep the matter under review, and we shall probably return to it on another date. Although the proposals are important, and they have not been addressed by the Minister’s comments, for the sake of making progress, I beg to ask leave to withdraw the amendment.
We have already discussed aspects of the important clause 40, which relates to complaints and references to the FCA about competition matters that adversely affect the interests of consumers. We have already discussed the arrangements for super-complaints, and it is welcome that the Financial Ombudsman Service or other authorised persons also have the ability to make references to the FCA, which is a positive change in proposed new section 234C. However, I have a specific question about the timing in new section 234D, which sets out that the FCA
“must within 90 days after the day on which it receives a complaint…publish a response stating how it proposes to deal with the complaint” and whether it will take action. Of course, it can simply report back and say that it does not believe that the complaint has any merit. Under proposed new section 234E, a body may have to wait 90 days to be told that the FCA judges their complaint to be
“frivolous, vexatious, or…made in bad faith.”
It should not take three months to arrive at such a judgment, especially when it comes to frivolous or vexatious complaints. Why is that 90-day period needed? Does the Minister expect that three-month period to be used rarely? Would it not be more ambitious for the FCA to have a target of speedier responses? That may already exist, but if so, I am not familiar with it. Does the Minister have any insight into the standards of timeliness that the FCA hopes to achieve?
I want to raise a point that follows on from the hon. Gentleman’s comments about the 90 days. As I understand it, the Treasury can vary the 90-day period, and I am sure that if the FCA does not need to take 90 days to decide that something is frivolous, it certainly will not take 90 days.
However, I am worried about whether the clause is strong enough to ensure that the FCA takes action. It can make a report, but there is no further constraint on it to implement the actions that it intends to take. Does the Minister agree that the FCA should take action to remedy, to mitigate, or to prevent any detrimental effect on consumers and to effect a comprehensive solution to the consumer detriment as soon as is reasonably practical? I cannot see anything in the Bill that makes the FCA take action within any specific timetable. Proposed new section 234D(1)(b) says that the FCA must state,
“if it has decided to take action, what action it proposes to take.”
However, there is no time limit. Citizens Advice has expressed concern that that lack of requirement could enable the FCA not to kick something into the long grass, but to take an unfortunate amount of time when consumers are suffering. It took six years for the payment protection insurance scandal or debacle—however you want to describe it—to be resolved. Will the Minister assure me that the FCA will deal with consumer problems in a timely and effective way?
It is a significant advance in consumer protection to allow super-complaints to be made to the FCA, and we wanted to follow the provisions set out in the Enterprise Act 2002. One factor that led us to bring these provisions forward was that the Which? super-complaint on ISAs had to go to the OFT, and people wondered why it did not go to the FSA. That is the thinking behind including the measure in the Bill. We sought to replicate the provisions of the 2002 Act. The Act does not stipulate a time, so in the case of a report-back mechanism for the OFT, for example, we have simply moved the provisions across. That is why there is no requirement to report back in a specific period of time on the action taken. Of course, when the FCA does respond to super-complaints, it must say whether it has decided to take any action, or no action at all. If it has decided to take action, it has to say what action it proposes to take. Significant accountability measures are built in, whether it is scrutiny by the TSC, or public pressure by Citizens Advice or others, to ensure that it delivers on that plan. If the FCA were to take action in response to a complaint, there is no shortage of pressure points.
The hon. Member for Nottingham East referred to the way in which I responded to the Which? super-complaint on debit and credit card surcharges. It encouraged me to a sweet response by inundating my office with cupcakes. A number of tools are available to people to put pressure on regulators or Government to reach a speedy conclusion and act. I am not encouraging a supply of cupcakes to my office, I hasten to add.
On the timing trigger for vexatious or frivolous complaints, or complaints made in bad faith, there might be such a situation, but a 90-day period would allow the regulator to go back to the super-complainant—if that is the right word—and tease out of them the basis of their complaint. That would guide them in the right direction to see whether there is any merit in the complaint, rather than automatically dismissing it out of hand as frivolous, vexatious or made in bad faith. There are reasons for having time limits in place, but I assure my hon. Friend the Member for Solihull that, although the Bill does not provide for reporting back on action taken, any sensible regulator will recognise that once it has said that it will take action, it will act, and it will be scrutinised if it fails to do so.