“(1) The FCA must lay before Parliament a report as soon as practicable after the end of—

(a) the period of 12 months beginning with the day on which this Act is passed, and

(b) every subsequent 12-month period,

on how it considers the specific needs of mutual and co-operative financial services providers and other relevant business models when discharging its regulatory functions.

(2) The ‘specific needs’ referred to in subsection (1) must include the needs of mutual and co-operative financial services providers to have a level-playing field with financial services providers which are not mutuals or co-operatives.

(3) The ‘mutual and co-operative financial services providers and other relevant business models’ referred to in subsection (1) may include—

(a) credit unions,

(b) building societies,

(c) mutual banks,

(d) co-operative banks, and

(e) regional banks.”—

This new clause would require the FCA to report annually on how they have considered the specific needs of mutual and co-operative financial services.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss new clause 8— PRA duty to report on mutual and co-operative business models—

“(1) The PRA must lay before Parliament a report, as soon as practicable after the end of—

(a) the period of 12 months beginning with the day on which this Act is passed, and

(b) every subsequent 12-month period, on how it considers the specific needs of mutual and co-operative financial services providers and other relevant business models when discharging its regulatory functions.

(2) The ‘specific needs’ referred to in subsection (1) must include the needs of mutual and co-operative financial services providers to have a level-playing field with financial services providers which are not mutuals or co-operatives.

(3) The ‘mutual and co-operative financial services providers and other relevant business models’ referred to in subsection (1) may include—

(a) building societies,

(b) mutual banks,

(c) co-operative banks, and

(d) regional banks.”

This new clause would require the PRA to report annually on how they have considered the specific needs of mutual and co-operative financial services.

It is a pleasure to serve under your chairmanship, Mr Sharma. The new clause would require the Financial Conduct Authority to report annually on how it has considered the specific needs of mutual and co-operative financial services. Britain has a long tradition of fostering the principles of co-operation and mutual support, and the histories of the mutual movement and the Labour party in this country are closely connected. Building societies and credit unions are a vital part of that tradition, and they continue to support working people to access affordable financial services and gain greater control over their lives.

Building societies play a vital role in providing people with a low-risk, member-focused banking alternative, and research has shown that trust in building societies is consistently high. They are typically well capitalised, making the sector more resilient to financial shocks and better able to lend and plan for the long term. Credit unions serve an extraordinary 1.9 million members and 2.1 million depositors across the UK. There is currently about £1.7 billion in loans to credit union members, providing a crucial lifeline to the most financially vulnerable in society and preventing people from turning to loan sharks and high-interest loans, which we discussed earlier.

Despite the distinctly British character and history of mutually and co-operatively owned companies, and the important role that they play in promoting financial responsibility and resilience among their members, numerous societies have been threatened with demutual-isation in recent years. The number of credit unions has plummeted by more than 20% since 2016 and, unlike the US and many other European countries, the UK is uniquely lacking in mutually or co-operatively owned regional banks. It is ordinary families that have paid the price, with many being forced into the arms of unethical lenders; that will only get worse as the cost of living crisis gets worse.

That has happened because credit unions, building societies and co-operative banks work in an outdated regulatory regime, leaving them unable to compete on a level playing field with standard providers. With the UK’s departure from the EU, we must rethink the rules governing the sector to provide greater flexibility and to allow mutuals and co-operative financial services to grow.

While the Bill contains some welcome and long-overdue provisions, such as enabling credit unions to offer a wider range of products, the plans for the wider sector have so far lacked ambition. If the Government are serious about supporting consumers to gain greater control of their personal finances after Brexit and supporting mutuals and co-operatives to grow and reach their full potential, the Minister should support our new clauses.

New clauses 7 and 8 would require the regulators —the FCA and the Prudential Regulation Authority—to have an explicit remit to report on how they have considered specific business models, including mutuals and co-operatives, to ensure that they are given parity of esteem with standard providers. If the Labour party were in government, we would commit to doubling the size of the co-operative and mutual sectors in this country. I hope the Minister will match the ambition of a future Labour Government.

It is a pleasure to once again serve under your chairmanship, Mr Sharma.

The Government recognise the value that the mutual sector brings to the UK economy and have great ambition for it; we are just not quite sure that that ambition is best manifested through an additional level of annual reporting. We are committed to the health and prosperity of the mutual sector, and that is why we are taking steps to ensure that the legislative framework in which mutuals and co-operatives operate is a modern and supportive business environment. The hon. Member for Hampstead and Kilburn knows, because we debated it last Friday, that the Government are supporting a private Member’s Bill that would allow co-operatives, mutual insurers and friendly societies greater flexibility in determining for themselves the best strategy for their business and restrictions on the use of their assets, specifically in the case of demutualisation.

New clauses 7 and 8 would require the FCA and the PRA to generate a new annual report. I am not sure that would be the most decisive intervention to support the mutual sector. The Government consider that arrangements are already in place for regulatory reporting, which may give the hon. Lady some reassurance. The FCA is required to produce an annual report covering many things, including the discharge of its functions, the advancement of its objectives and its consideration of the existing regulatory principle relating to mutual societies. That report is laid before Parliament by the Treasury. Like the FCA, the PRA produces an annual report on its progress, and sets out its future plans in its annual business plan.

My hon. Friend the Minister will know that, in addition to that, the FCA regularly engages with mutuals and co-operatives. In March, a chief executive officer letter was circulated around building societies to remind them of their duties towards customers. That is in addition to the statutory provisions. Perhaps the Minister could briefly comment on the additional engagement the FCA has with building societies and mutuals.

My hon. Friend makes an important point. Of course, my officials and colleagues in the Treasury also engage with the sector. We are alive to opportunities—perhaps not in the domain simply of annual reporting, but we are alive to practical opportunities that allow the sector to flourish.

I appreciate what the Minister is saying. I believe that he does want the sector to flourish and, as he says, on Friday we supported the private Member’s Bill promoted by my hon. Friend Sir Mark Hendrick; the Government supported it, obviously. However, the aim of the new clause is specifically to consider the needs of mutual and co-operative financial services. The Minister will be aware, because many Government Members made the point during the private Member’s Bill debate, that we are falling behind the US and European countries when it comes to mutually or co-operatively owned regional banks. He must be aware of the statistics showing that we are falling behind as a country, so should we not be making extra provision to ensure that we do not fall behind in this sector?

Without disagreeing with the hon. Lady, I will say that one person’s falling behind is another person’s different model of institutions.

The Financial Services and Markets Act 2000 obliges both the PRA and the FCA to consider how their regulatory rules—their rulebook—impact on mutual societies and whether the impact would be different from that on non-mutual entities. FSMA already requires both regulators to consider the impacts of their regulation on the specific needs of mutual and co-operative financial service providers and any difference of regulatory impact on these entities compared with their non-mutual colleagues.

Given that appropriate arrangements are already in place for regulators to report, that the FCA and the PRA already produce well combed through annual reports and that there is no deficiency in the level of engagement with the sector, with the Government remaining open and alive to opportunities, my contention is that the proposed measure is simply unnecessary. While I do not disagree with the principle set out by the hon. Lady or her ambition to double the size of the sector, I respectfully ask her not to press the new clauses.

In anticipation of the ambition for a Labour Government, I will press the new clause to a vote.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 5, Noes 8.

Question accordingly negatived.