Financial Services and Markets Bill – in a Public Bill Committee at 4:00 pm on 25th October 2022.
I beg to move amendment 39, in clause 20, page 31, line 37, at end insert—
“(1A) Where the content of a communication for the purposes of section 21 has not in the first instance been approved by an authorised person, approval by another authorised person may only be sought the FCA’s approval for the other authorised person to do so being provided in writing.”.
This amendment would prevent operators from “shopping around” for approval from an authorised person where one authorised person has not given approval, unless the Financial Conduct Authority permits this.
With this it will be convenient to discuss the following:
Clause stand part.
That schedule 5 be the Fifth schedule to the Bill.
The amendment is quite simple. I understand the reason behind the concept of the authorised person. The Financial Conduct Authority will never have the resources or capacity to authorise every single financial promotion that somebody wants to publish, so that role needs to be outsourced. My concern is that, in some of the scams that my constituents have fallen victim to, the authorised person has sometimes been a key part of the web of deceit and concealment that has been laid for my constituents and others to fall into. Very often, when it all goes wrong, we find that the authorised person who approved the financial promotion has gone out of business themselves, so there is nobody left to take responsibility.
I am concerned that something that I have seen happen in a small number of cases might become more common. If someone takes a financial promotion that is clearly not compliant with legislation to an authorised person, the authorised person might well say, “No, I am not going to authorise it.” There is nothing to stop the person from then shopping around and finding someone who will agree to approve the promotion on their behalf. Because these promotions are so common, and because there are so many of them being authorised and then issued, it is very difficult for the regulator or anyone else to pick up on the ones that should not have got through. We are relying on the integrity of the authorised person.
The intention behind the amendment is to ensure that, regardless of which authorised person someone goes to, they get a consistent answer—either yes or no. If one authorised person refused to give approval for a promotion, it could then be approved only with the consent of the Financial Conduct Authority. I am not sure that I am minded to press the amendment to a vote, but I hope that the Minister will be sympathetic to the intention behind it. If he feels that the amendment is not necessary, or that its purpose could be achieved by a better route, I would be quite happy to hear his reasons.
We welcome clause 20, which we recognise would introduce tighter controls on those who approve financial promotions for others, to ensure that consumers are better protected. How does the Minister foresee the clause facilitating improved approver expertise, due diligence and challenges in exercising appropriate regulatory oversight?
Obviously this is an extremely important part of the Bill because it creates a regulatory gateway for financial promotions. We know from what the FCA has reported that there is an issue with misleading financial promotions. We all know it from our constituency casework; we know it from some of the scandals that have been carried out successfully.
Part of the trouble is the closeness to the perimeter of regulation. A firm can have part of itself in the perimeter, while other parts are outside the perimeter, but in the promotions, it gives the impression that all the firm is regulated and all of what it is doing is within the perimeter, while advertising in a very misleading way things that are actually unregulated and therefore much riskier. We know that a lot of scams have happened that way. The way in which the FCA tries to deal with this situation is like trying to hold back the tide. The fact that so many of the promotions that it has managed to get a handle on—4,226 of them—have been withdrawn or amended to make them less misleading demonstrates that the FCA is doing its best. However, members of the Committee know that there is a constant battle with scammers, who constantly change how they present information to consumers and potential consumers through an ever-increasing number of gateways, even on things like TikTok. It is difficult for any regulator to get a handle on that, so anything that helps to battle the problem more effectively will be welcomed by all of us.
Will the Minister explain in more detail why he thinks that this is the right way to proceed, and how effective he thinks the powers in clause 20 will be in tackling the problem? We know—I think we will come on to this later in our proceedings—that cracking down on fraud more effectively will also be important. With the financial promotions and unauthorised third parties that deal with granting permissions, we know that the current regime can cause problems. We know that it is failing and that the FCA cannot be expected to do all this work with the resources it has, so will the Minister go into detail about how effective he thinks the measures will be, and say how he will be assessing this approach’s effectiveness? Clearly we want a reduction in the amount of scamming and fraud, and the number of promotions that are misleading or downright lie about the nature of the products they are pushing, so I will be interested to hear how the Minister sees clause 20 as the solution to this difficult problem.
I thank the hon. Member for Glenrothes for raising the issue, which I understand is of concern to Members on both sides of the Committee. I also thank him for indicating that he will not press the amendment to a vote. I think the reason for that is that clause 20 is a genuine enhancement of the regulatory infrastructure. It creates a new, two-tier regulatory structure that speaks directly to the issue of those who have been authorising harmful financial promotions. It does so by introducing a new assessment by the FCA that requires that they be assessed as fit to do so. I will come on to what that could look like in a moment.
We understand what financial promotions are. They are inducements or invitations to engage in investment activity in its broadest form.
The Minister says that we all understand what financial promotions are, but do we really? Is the existing definition agile enough? One of the dodgy directors I mentioned earlier has now set himself up on TikTok as a lifestyle guru. Everybody knows he is doing this to groom people. He will say to someone, “I’ve got this brilliant investment plan that nobody else knows about. Why don’t you do it?” Does that sort of thing count as a financial promotion or not? Quite clearly it is an inducement and an attempt to get someone to sign up to an investment that may or may not be legitimate.
I am not familiar with the precise incident that the hon. Gentleman talks about. We have to reflect that there will be a continuum from someone being a lifestyle guru to someone promoting a financial product. Our job as legislators is to understand where those cliff edges lie and to bring forward procedures that mean that the scope is laid in the right place, so that cliff edges are legislated for appropriately.
The clause creates a new regulatory gateway specifically for such firms. A measure of success, which the hon. Member for Wallasey challenged us on, would be fewer firms engaging in that activity because of the presence of the regulatory gateway and the higher threshold, given the past challenges in this space. The Financial Conduct Authority will bring forward the detail of what the regulatory gateway will look like. I understand that it has committed to consult on that before the end of 2022—before the end of this year—and I am sure we that will all be interested in seeing that. I expect that the consultation period will conclude before the Bill reaches Royal Assent, and that will put us all in a good position. I hope that the hon. Lady will bear with us as the FCA brings forward more details.
As I have touched on several times today, the Bill is incredibly important. The clause is an enhancement of the regulation of promotions. It is not a panacea. The fight against financial crime—whether fraud or other activities—has been characterised as, to a degree, an exercise in whacking moles. My understanding is that the regulator feels competent and that it has the right resources, but we recognise that this is a quest that we will always be engaged in.
The Government are engaged in other endeavours, including removing the exemption for online platforms in respect of financial promotions. As so many of the problems we face originate online, that will be a valuable extension. Some online service providers have already upped their game. I hope that we see much more significant progress, given some of the regulation.
On the detailed application of the regulatory gateway set out in the clause and in schedule 5, the Government want consumers to be provided with clear and accurate information that allows them to make appropriate decisions based on their individual circumstances. That is what the clause is designed to do, so I recommend that it should stand part of the Bill.
Schedule 5 amends FSMA simply to ensure the effective implementation and operation of the regulatory gateway. It expands the FSMA definition of “regulated financial services” to include inducements to engage in investment activity, bringing the full range of financial promotion activity within the scope of the FCA’s general duties. In effect, the schedule makes provision to apply existing offences within FSMA to the approval of financial promotions, and applies other relevant parts of FSMA to ensure that the FCA can effectively oversee the gateway. In short, it expands the scope of existing legislation to include more activities, and creates a two-tier authorisation structure.
I beg to ask leave to withdraw the amendment.
FSMB32 Mark Versey, CEO, Aviva Investors, Claire Hawkins, Director of Corporate Affairs, Phoenix, Emma Wall, Head of Investment Analysis, Hargreaves Lansdown, Bruce Duguid, Head of Stewardship, Equity Ownership Services, Federated Hermes, Gemma Corrigan, Head of Policy and ESG Integration, Federated Hermes Limited, Romi Savova, CEO, PensionBee, Laura Chappell, CEO, Brunel Pension Partnership, Mike Williams Holiday, CEO, Aegon UK, Alex Perry, CEO, BUPA Insurance, Paul Bucksey, CIO Smart Pension, Ben Pollard, CEO Cushon, Oliver Prill, CEO, Tide, and Chris Martin, Chair Pace (Coop Pension Scheme) (joint submission)
FSMB33 Open Finance Association (OFA)
FSMB34 Euroclear Group
FSMB36 Building Societies Association (BSA)
FSMB38 Electronic Money Association
FSMB39 London Metal Exchange Group (LMEG)
FSMB40 The Investment Association
FSMB41 Insurtech UK