Financial Services and Markets Bill – in a Public Bill Committee at 2:45 pm on 3rd November 2022.
“(1) The Financial Services and Markets Act 2000 is amended as follows.
(2) In Section 3B(1)(b) leave out ‘considered in general terms’.
(3) In Section 3B(1)(b) after ‘restriction’ insert ‘, and take into account the nature of and risk to the consumer, and the service or product being delivered’.”
This new clause would amend the existing regulatory principle for both regulators to remove reference to proportionality in “general terms”, and include that the nature of and risk to the consumer, and the service or product being delivered, must be taken into account when imposing a new burden or restriction.
I beg to move, That the clause be read a Second time.
I will try to be brief because I realise that I am the last barrier between us finishing the Bill and being able to return to our constituencies. New clause 19 is a very simple provision. The point is that we need to recognise that not all financial services are the same; they have different levels of sophistication of buyer. The consumer who buys car insurance will be very different to one who buys aircraft insurance or other more commercialised products. I believe there should be a more proportionate approach.
There is currently a one-size-fits-all approach that treats all financial services the same, irrespective of the product or the buyer. However, that is not the reality, as I have said. The consumers for wholesale markets, such as London markets, for example, are very sophisticated buyers. They will often have huge teams of financial, policy and insurance experts who will advise them on the product. They do not need the same level of consumer protection as an individual retail consumer would have. And that burden on the London market has an impact on our global competitiveness. I gave the example earlier in Committee of insurance-linked securities, where we are losing out to other jurisdictions.
Therefore, what I am asking for through this new clause is a more proportional approach. That would also have the benefit of freeing up more time for the regulator to look at the customers who are more in need of its support, such as individual consumers, whom it is of paramount importance to keep safe, so I again ask the Minister to look carefully at the new clause and see how we can incorporate it into the Bill.
Again, I guide the Committee to my entry in the Register of Members’ Financial Interests.
I think that this is a really important new clause. My hon. Friend the Member for North Warwickshire has said several times that, currently, one size fits all. Those of us who remember the aftermath of the financial crisis rightly thought that there needed to be greater regulation, but the fact that the regulation treated every financial company and every financial services company as if it were a deposit taker had major ramifications for the financial services sector for a long time. My hon. Friend the Member for North Warwickshire is experienced in the insurance industry, but my hon. Friend the Member for Grantham and Stamford and I are experienced in the asset management industry, and that industry was treated as if it were a deposit taker. The regulation was totally inappropriate, because it did not address any of the potential mischiefs that might be created but did treat the industry as if it were a deposit taker. Therefore the thrust behind what my hon. Friend the Member for North Warwickshire is saying here is that all regulation should be proportionate to risk and to knowledge of the person to whom the wrong might be done.
The other point that I want to make is that if the proportionality principle were in the Bill, the effectiveness of the cost-benefit analysis panels would be substantially increased. We discussed those panels in some depth last week, and a number of concerns were expressed about the membership of the panels and how they should report. New clause 18, which we have just discussed, would help to address some elements of how the work of the cost-benefit panels could be undertaken and measured in the same way in an annual report. I suspect that if there were a proportionality principle inside the basis of the operation of those panels, we would, again, see the regulator having to be more thoughtful about ensuring that one size does not fit all with regard to what it is trying to remedy with the regulation. We could have a better view of whether there is benefit to the regulation if this principle were enshrined in the Bill, so I thank my hon. Friend.
Let me start by thanking my hon. Friend the Member for North Warwickshire for raising the important issue of regulatory proportionality in financial services—something that I think is relatively uncontentious in principle, but which is clearly important in practice. We heard from my hon. Friends the Members for North Warwickshire and for Wimbledon. Indeed, we have heard in the course of this sitting from a number of Government Members with practitioner experience and they have kept coming back to this sort of example, whether it involves cost-benefit analysis, the composition of practitioner panels, or proportionality, which I hope is a widely agreed principle.
There are a number of initiatives, which my hon. Friend the Member for North Warwickshire will be aware of, in respect of proportionality: the embedded regulatory principle as it stands today, as well as guidance and initiatives such as the financial services regulatory initiatives grid and forum—I am sure that my hon. Friend is deeply familiar with its work. There are a number of initiatives designed to elevate work in this space. As I said, my hon. Friend raises an important point. It is another point that I would like to go through when I meet him and my hon. Friend the Member for Wimbledon and look at it as an interlocking set of initiatives around the proportionality of reporting transparency to ensure that we get the balance right. If there is an opportunity to improve that, we will seek to take it. As this is the last clause of the Committee, perhaps my hon. Friend would be so kind as to not press it to a vote, given the undertakings that I have given.
I would like to thank you, Mr Sharma, for your adroit chairing of the Committee and for ensuring that we completed the necessary clauses on time and in the correct order. We have heard some lovely vignettes delivered passionately by the hon. Member for Mitcham and Morden about the lack of cash for her constituency and some of the actions to remedy that, on which I hope to join her. I thank the hon. Member for Blaydon for her co-operation with my colleague, and the hon. Member for West Dunbartonshire, who— often flying solo—so diligently represented his standpoint. I thank the hon. Member for Hampstead and Kilburn, who demonstrated great prowess when predicting the points that I may or may not make. I hope that there is more that we agree on in the Bill than we disagree on. Finally, I thank my officials, who have supported my work and the work of this Committee during the past few weeks.
I thank my hon. Friend the Member for Wimbledon for making some excellent points that seek to strengthen what we are trying to do. I thank the Minister for his comments, and on the basis of that meeting with him, I beg to ask leave to withdraw the motion.
On a point of order, Mr Sharma. I thank you and Government Members. We wanted to get this Bill through and, as a shadow Minister, we do not have a team of officials working for us, so I want to thank my office, who have worked really hard on this, and especially Mark Hudson. Sometimes we do not name the people behind us, but he has put an enormous amount of time and effort into preparing me for this Committee. I thank the Whips on both sides and all the officials.
I also thank the Association of British Insurers, UK Finance and TheCityUK, as well as individual financial services businesses, because they helped brief me for Committee stage and helped us develop the Labour party’s vision for the financial sector. Finally, I thank Fair by Design and the consumer group Which?. They put an enormous amount of effort into advising me on the amendments that we tabled to the Bill.
Further to that point of order, Mr Sharma. This was my first Bill Committee, so it has been a baptism of fire. After evading it for seven years, I have been the wingman to my good and hon. Friend the Member for Glenrothes. It is a pity that it has been such a personally sad time for him and that he has not been able to be here. I commend him and his team for the work they put in on the clauses, working with the Clerks, who have done a tremendous job working with all of us to get to this stage. I thank the Minister for his ability to be open and engaged in the debate, and I am grateful for the support from hon. Members on both sides during deliberations on our new clauses and amendments.