Financial Services and Markets Bill – in a Public Bill Committee at 2:30 pm on 3rd November 2022.
“Relevant regulators may be the subject of civil damages actions in cases where conditions A, B and C are met—
(a) condition A is that a consumer has suffered material financial loss,
(b) condition B is that the material financial loss referred to in paragraph (a) has occurred as the result of the conduct of an activity, or activities, which are prohibited,
(c) condition C is that the prohibited activities referred to in paragraph (b) are within the statutory remit of the relevant regulator, and the relevant regulator has negligently failed to take sufficient action to prevent the prohibited activity or activities occurring where it was aware, or could reasonably be expected to have been aware, that the prohibited activity or activities were taking place.”—
This new clause would allow regulators to be the subject of civil damages actions if a consumer has suffered financial loss as a result of prohibited activity and the regulator has not taken sufficient action to prevent such prohibited activity within its remit.
I beg to move, That the clause be read a Second time.
Sadly, my hon. Friend the Member for Glenrothes cannot be with us today. I apologise for my late arrival; I had a constituent issue.
There will be questions about how the provisions in new clause 16 would be financed, but the Committee must be conscious of why we tabled it. The FCA has been immune in this sense for nearly two decades, and there have been issues over that period. Notably, I am mindful of some of the issues related to its dealings with the crash and so on. I am also mindful of the possibilities for payment back in terms of liabilities. For example, NatWest was fined £265 million by the FCA as recently as last December. There are certainly possibilities to finance such a process.
The rationale is that if we look at organisations and individuals who have suffered due to the FCA’s failure to prevent several scandals—notably in 2019 with London Capital & Finance, when 11,000 bondholders were said to have lost more than £200 million—that is not acceptable. Those bondholders were most probably not the kind of high-end multibillionaires who could maybe lose a couple of million pounds and not think anything of it. They were our constituents who make some small or medium-sized investments. They are people who might be in business, or trying to hold their companies together.
We need to challenge and discuss the failure of the FCA to deal with such issues. I am keen to hear what the Government have to say about how we can build strength into the Bill, whether that is through the regulator or through other means. I will wait to hear what the Minister says in terms of pressing the motion to a vote, because I think there might be an opportunity to bring it back at another stage when we can have further debate and deliberation.
The hon. Member for West Dunbartonshire set out an interesting proposition and an interesting rationale for the new clause. He is absolutely right that, although the FCA has enjoyed Crown immunity for the last 20 years, there have been any number of times when its failure to act—or to act in a proportionate and material, or sufficiently material, way—has impacted others. The Government do not enjoy that immunity; they are subject to claims for civil damages if actions or failures to act have material consequences. Therefore it seems only appropriate that we should test the hon. Gentleman’s proposition.
I assume that the regulator has enjoyed Crown immunity to ensure that frivolous or vexatious actions are not undertaken against it. I understand why the hon. Member sees this more as a probing new clause; as the new clause stands, it is difficult to be absolutely clear what “material financial loss” is, how we might define “negligent” and how we determine whether the regulator could have taken other action. There are any number of things that one might want to resolve.
I am grateful to the hon. Gentleman; he is following my thinking and that of my hon. Friend the Member for Glenrothes. One of our grave concerns is that the issue is not just about the top bills of £200 million. There will be a range of investors who may have been scammed, or who may have had issues with the FCA, but the losses involved may not be £200 million—they may be a couple of hundred thousand pounds. Those small, incremental failures impact our constituents the most. I hope the hon. Gentleman would agree that we usually hear about the FCA’s failure when the losses are bigger, but the other failure is those smaller, diminishing returns.
I completely agree with the hon. Gentleman, which is why I assumed that this is a probing new clause. We may well wish to define condition A very differently—for instance, as a loss that is material to the wealth or income of the particular consumer who has suffered that wrong. I hope the Minister will think carefully about, and perhaps even discuss with the FCA, the basis of the hon. Gentleman’s proposition. It is not right to support the new clause as it is currently drafted, but the principle that the hon. Gentleman has set out is probably the correct one, although it will need a lot more work before it can be enshrined in law.
There have been calls, including from lawyers—some people think lawyers are a bad thing, but I think they are quite good, because I am one—to end the Financial Conduct Authority’s civil immunity. If consumers suffer losses as a result of the FCA’s negligence, we should consider whether they can take civil action against it. I am thinking of constituents of mine who suffered losses from the London Capital & Finance collapse. I am aware that the Government launched an independent inquiry, led by Dame Elizabeth Gloster, into how the FCA regulated London Capital & Finance before its collapse, although I do not know what the outcome is yet.
There is merit in the new clause tabled by the hon. Member for West Dunbartonshire, and I wonder whether the Minister might consider it further in due course. Although I agree with my hon. Friend the Member for Wimbledon that the new clause might not be constructed in the right way, the principle behind it certainly has merit.
I fear I will probably repeat what my hon. Friends have just articulated so clearly. I agree that the principle of the new clause, as articulated by the hon. Member for West Dunbartonshire, is interesting. As my hon. Friend the Member for Hastings and Rye pointed out, many have been calling for such action for some time. Clearly, the running theme of these contributions, which was expertly advanced by my hon. Friend the Member for Wimbledon, is how we tighten things up so that the system operates effectively.
I do not know whether the new clause, as drafted, necessarily does that, but there is a basis here on which to do some of the important work that needs to be done. It feels like there is consensus about what the new clause attempts to do, which is effectively to tell the FCA that, where it is responsible because it has not acted in the way it should, there needs to be a right of recourse. As Members on both sides of the Committee have said, we are talking not just about the higher end of investment, but about individuals who have put in significant amounts—often their life savings. They feel the impact very profoundly, so it is right that they feel there should be some recourse.
Although I fear I may repeat what some hon. Members have said, the principle we are discussing is interesting. The new clause raises some important issues, which I hope the Minister will take away. We just need to explore further how we tighten up the operational element, before these proposals are taken forward. However, new clause 16 does raise an important issue, which I hope the Minister will continue to explore.
I will be brief in responding. The hon. Members for Glenrothes and for West Dunbartonshire raised an important issue, and I hear echoes of it from hon. Members who have often been involved in helping their constituents to seek redress. I will choose my words carefully, because I have done only some preliminary examination of how immunity does and does not work. How the common law—the rights of appeal and the establishment of negligence—could be applied to the FCA is something that I am happy to go away and consider and to take advice on. Right now, if hon. Members will forgive me, I will choose my words carefully and say that there may be something here. We have looked a number of times at the different interlocking roles of Parliament and regulators in the Bill. The new clause would introduce a third axis, which is the power of the law of negligence.
I do not know whether the hon. Member for West Dunbartonshire wishes to put the new clause to a vote, but I would ask him to desist from doing so. However, I reassure him that he has planted the seed of the thought that I believe he was hoping to with the new clause. I will take it away to see whether it is worthy of consideration and whether there is a practical way of achieving it, and of course listen to the views of the FCA about how it thinks this would modify its conduct and behaviour and the position of consumers, which is ultimately what the regulatory regime seeks to address.
I have heard what other Members have said, and I am glad that there is perhaps consensus about the principle. The state has to be accountable. The FCA is part of the state’s regulatory framework; its actions need to be able to be held to account, and not just by Parliament. There needs to be a discussion about how individual citizens—our constituents—have been damaged financially and personally by failures to act. That needs to be better understood.
At the moment, I am happy to withdraw new clause 16, but we may consider it at a later stage in the Bill. I beg to ask leave to withdraw the motion.