Mr.
Hoban: This is quite an important schedule, although I
have not tabled many amendments to it. Nevertheless, I want to ask a
question about the funding of the new body and how it will work in
practice.
The schedule
effectively sets out three sources of funding for the new consumer
financial education body. The first is funding by authorised
persons—people who are currently regulated by the FSA. Of
course, the FSA’s existing work on financial capability is
funded through the levy, so there is a continuation of the existing
arrangements.
The second
stream of funding comes from those who hold consumer credit licences.
That is a new form of funding. It may not be welcome to people who hold
credit licences, but I welcome it because one of the new body’s
roles will be to help educate people on consumer debt, and not all who
provide consumer credit are regulated by the FSA. There are about
120,000 consumer credit licences at the moment, which is many times the
number of people who are regulated by the FSA.
The third
source of funding is the Government. The Conservative party believes
that consumer finance education should be funded entirely by the
private sector, but that is not the reason for my speech. The Minister
and I are veterans of many pieces of legislation, one of which is the
Dormant Bank and Building Society Accounts Act 2008. One priority for
the Government when making that legislation was financial capability;
it was the second of three priorities that they set. Will the Minister
say whether any of the money released from dormant bank and building
society accounts will be used to fund the initiative? Is it one of the
grants or loans to be made by the Treasury? I know that the funds
identified under the 2008 Act will be distributed by the Big Lottery
Fund, but the Bill does not refer to funding from that source. Will
that emerge under paragraph 14 to schedule 1?
I turn to the
other two sources of funding. A table published at page 30 of the
impact assessment, which was extracted from information in the Thoresen
report, sets out some of the contribution levels for various types of
funds—independent financial advisers, insurance brokers, general
insurance and so on. It is based on data from 2008.
The FSA will
produce rules to calculate contributions, but what will be the scope of
those rules? Will the contribution of the banks need to be determined
by their activities in the retail market? The activities of a number of
banks regulated by the FSA take place in the
wholesale markets, and they might not have a retail deposit base. The
activities of some banks based in the UK are predominantly overseas.
Will they be required to contribute to the levy in the same proportions
as banks whose operations are predominantly UK-based? What factors will
determine the amount of levy that an authorised person will contribute?
I am interested in contributions relative to the size, nature and
location of activities. On consumer
credit licences, it is not clear from the impact assessment or the Bill
whether contributions will be made per licence or whether they will be
based on the turnover of the licence holders. Dentists that offer their
patients a Denplan agreement are authorised by the Office of Fair
Trading to offer consumer credit. Will they have to pay the same
contribution towards the scheme as a consumer finance house that lends
many millions of pounds to consumers? Will there be a simple
differentiation? Will the amount of consumer credit activity that the
licence holder undertakes determine how much the consumer credit
company should contribute to the scheme? Clarification of how that will
work would be helpful.
Again on the
topic of funding, paragraph 7(4)(b) states that the consumer financial
education body must consult the Secretary of State. Will the Minister
clarify which Secretary of State that will be? One would assume that it
refers to the Chancellor of the Exchequer, but the Treasury is referred
to in paragraph 7(4)(a). Does it refer to the Department for Business,
Innovation and Skills, as the Department responsible for the OFT? Is it
the Department for Work and Pensions, as it also has an interest in
financial literacy? [Interruption.] I refer to
paragraph 7(4)(b). I mentioned the Department for Business, Innovation
and Skills, the sponsor of the OFT, because the OFT is listed as a
consultee under paragraph 7(4)(c). I am not clear which Secretary of
State is meant to be involved in the matter. I hope that there is some
clarification on the points about funding and who will be
consulted. Rob
Marris (Wolverhampton, South-West) (Lab): I want to make
some brief remarks on paragraphs 3, 15, 10 and 5. Paragraph 3 will set
up the consumer financial education body as something divorced from the
Crown, to the point where its members, officers and staff are not to be
regarded as Crown servants. It is supposed to have considerable
autonomy via the FSA, another quango—regrettably, though it may
be desirable in this case. We then move on to paragraph 15, which sets
out that the FSA can appoint an independent person to conduct a
review. Not
long ago, when we were debating amendment 48, the Minister quite
understandably trotted out the line that is often used by Ministers,
“Something is quite interesting and may be worth while, but we
do not need it on the face of the Bill.” Under paragraph 3, an
independent body is set up that is divorced from the Crown, but then in
paragraph 15, continued in paragraph 16, there is a bunch of
stuff about how the FSA “may”—the provision is
permissive, not mandatory—appoint someone to conduct a review.
Although a review might be desirable to consider how the body is
functioning, I fail to see why that power needs to be on the face of
the Bill. Is it because paragraph 3 divorces the CFEB so much from the
FSA and the Crown?
When we were
debating amendment 46, the Minister said that the CFEB will “do
what it says on the tin” and that it is not a consumer
advocacy group. Under paragraph 10, however, it is exempted from the
Consumer Credit Act 1974 with regard to getting a licence. That
suggests that the Government anticipate that the body might give advice
for which it would otherwise, but for paragraph 10, require a licence.
Therefore, there appears to be a
contradiction.
Mr.
Hoban: Perhaps it is not so much about giving advice, but
offering loans to its customers.
Rob
Marris: I very much doubt that the body will be offering
loans. However, it is curious that while it seems clear to the Minister
and the Government what the body will do—what it says
on the tin—we have on the face of the Bill specifically an
exemption from the requirement for a consumer credit licence.
Paragraph 5
seems quite extraordinary, and I would like the Minister to explain it
a bit more. It is almost an “Alice in Wonderland”
provision. For anything that would be against the law, the consumer
financial education body can say, “It is not against the
law.” The body is one that, as I adverted to earlier, under my
reading of paragraph 3, is pretty much divorced from the
Crown—it is a kind of super quango. As I read it—I may be
misreading it—pursuant to clause 5, the body can make up its own
laws, in the sense that it can say whether a person is exempt from the
laws under the Consumer Credit Act 1974. Paragraph 5 seems a strange
provision, and I hope that the Minister can say a little more about the
rules of law that could be waived by that fairly independent body, the
CFEB.
2.45
pm
Ian
Pearson: Let us mop up all these points, shall we? First,
with regard to the financing of the new consumer financial education
body, the hon. Member for Fareham mentioned the Dormant Bank and
Building Society Accounts Bill, for which we both served on the
Committee. As he is aware, one of the intentions of that legislation is
that money from dormant accounts will be made available to the new
consumer financial education body, and I confirm that that remains the
case.
In the
pre-Budget report, we announced a joint Government-FSA commitment to
provide £20 million for the roll-out of the money guidance
project in 2010-11, enabling it to reach 1 million people during its
first year. The PBR also announced dormant account funding of at least
25 per cent. of available funds, up to £100 million,
over a number of years. Regarding the funding specifically, the hon.
Gentleman will be aware that paragraph 12 gives the
FSA—
Mr.
Hoban: Is the Minister saying that paragraph 14 enables
the Big Lottery Fund to make grants to the consumer finance education
body?
Ian
Pearson: It is certainly my understanding that under the
dormant accounts legislation, money would go from the reclaim fund to
the Big Lottery Fund and then out to good causes, which include
consumer financial
education. That is the route by which funding will be provided. My
officials are nodding, so my memory must be
correct.
Mr.
Hoban: But the funding comes from authorised persons,
consumer credit licensees and
“Funding
by grants or loans etc. made by Treasury or Secretary of
State”. The
Big Lottery Fund is distributed to good causes, but it does not feature
at all as a source of funding in the funding regime set out in the
schedule, unless the intention is that the Big Lottery Fund should give
back money to the Treasury, which will then make the grant to the
consumer finance education
body.
Ian
Pearson: The hon. Gentleman is absolutely right that
paragraph 14 allows the Treasury and the Secretary of State the power
to make grants, loans or other financial assistance to the consumer
finance education body. It does not refer to the Big Lottery Fund. The
intention has always been that money from the reclaim fund will go to
the consumer finance education body. I will check the exact route by
which that will happen, but the policy intention is clear.
The hon.
Gentleman also mentioned the FSA’s power under paragraph 12 to
levy persons authorised under FSMA. The FSA must take into
account “other
anticipated sources of
funding” when
deciding how much to levy firms. As he is aware, the FSA has a duty to
ensure that the new body can function. The FSA already levies firms. It
is up to the FSA to make its rules, but that is not something with
which the FSA is unfamiliar. Nor, indeed, are the
firms. Paragraph
13 gives the Office of Fair Trading powers to levy Consumer Credit Act
1974 licence holders, which the hon. Gentleman welcomed. The OFT levy
is exercisable by way of a general notice from time to time, and both
the FSA and the OFT will be able to except certain categories or types
of person partially or fully from the levy. The OFT will issue a
general notice. I think that that will be sufficient
explanation for
him. The
hon. Gentleman asked who the Secretary of State mentioned in paragraph
7(4)(b) would be. I can confirm that the Secretary of State in that
instance is the Secretary of State for Business, Innovation and Skills,
because that is the sponsor Department for the Office of Fair
Trading.
My hon.
Friend the Member for Wolverhampton, South-West raised a number of
questions. The answer to the one on paragraph 15, in short, is yes. He
asked why that should be in the Bill and whether it was because we were
setting up an independent body. We believe it is right that the FSA has
the powers to have an independent review. They are useful backstop
powers. We have every confidence that the new body will be set up so as
to operate effectively and that will be demonstrated. It is useful to
take the powers in legislation, so that if the FSA felt it necessary to
conduct a review, it would be able to do so and have the co-operation
of the new
body. Paragraph
10 exempts the new body and those acting on its behalf from certain
requirements under the Consumer Credit Act. My hon. Friend probed me on
why that is the case. The exemption is needed as there may be
occasions when the new body or its agents could engage in financial
education activities that fall within the Consumer Credit Act. We have
in mind that, in the course of a money guidance session, an adviser
might take an individual through how to enter their details into an
online credit card comparison tool. That would constitute an activity
caught by the Act. There is no intention, as I said earlier, for the
new body or its partners to offer regulated financial advice and I am
happy to reinforce that point. It is clear that where the new body
might be caught by the Act is very limited and incidental to its
activities. I
am afraid that I do not have an immediate answer to my hon.
Friend’s question about paragraph 5, but I will endeavour to
write to him, if he will permit
me.
Rob
Marris: I am grateful to my hon. Friend for agreeing to
write to me. That is quite satisfactory because, in terms of what he
said about paragraph 15—stressing it was an independent
body—we have an independent body that apparently can waive the
rules, for example, for an organisation with a royal charter or with
charitable status, and that is rather odd. Perhaps when he writes to me
he can let me know parallels elsewhere in the law where some
independent body, such as the CFEB, has the ability, in my words, to
re-write the
law.
Ian
Pearson: It has come back to me—with the help of a
scribbled note—and I remember the background to it, as well.
Paragraph 5 enables bodies to work with the consumer financial
education body, even in circumstances where their constitution might
not otherwise allow them. We specifically have in mind areas where a
charity might be concerned whether the activity is wholly within its
charitable status. That is the only particular area of concern that I
am aware of. There are charities that want to work with this new body
that believe they should be helping particularly vulnerable people
improve their levels of financial literacy and make better decisions.
The provision enables them to do that without having concerns about
their charitable status. I hope that sufficiently clarifies
matters.
Rob
Marris: I hope that my hon. Friend will write to
me.
Ian
Pearson: My hon. Friend wants me to write to him and I am
more than happy to do
so. Question
put and agreed to.
Schedule 1
accordingly agreed
to.
Clause
7Meeting
fsa’s regulatory
objectives
Mr.
Hoban: I beg to move amendment 44, in
clause 7, page 5, line 18, leave
out paragraph
(b). Clause
7 makes some changes to some aspects of the Financial Services and
Markets Act 2000. I particularly want to focus on clause 7(3)(b), which
inserts a new subsection in section 45 of FSMA. Subsection (3) refers
to: “(variation
or cancellation of Part IV permissions: FSA’s own-initiative
power)”.
This is not
the first time in our deliberations on this Bill that section 45 of
FSMA has cropped up in debate. When we had the discussion at the start
of our deliberations about the FSA’s disciplinary powers, we
talked about what the Government were seeking to achieve in
clauses 14 to 16. It was very clear from that debate that
these powers were to be used in the event that disciplinary action had
been taken against a regulated firm and that these powers were
penalties that could be used as part of the FSA’s enforcement
powers.
The
discussion that we had then was also about how consumers are protected
when a disciplinary action has been taken, given the constraints upon
the transparency of the disciplinary process that are built into FSMA,
and about how we protect people who are current customers of a firm
that is subject to disciplinary action. The example that was given then
was a mortgage company that was subject to enforcement action by the
FSA at the same time that some of its customers were being taken to
court by the mortgage company, and furthermore the issue that had led
to the enforcement action being taken against the firm was about how
the company handled mortgage arrears. The question was how do we ensure
that existing customers are protected while disciplinary action is
taking place. The response from the Minister then was the FSA has
powers to stop an activity, as a preventive measure rather than as a
penalty. They were powers under section 45 of FSMA:
“(variation or
cancellation of Part IV permissions: FSA’s own-initiative
power)”. The
change that the Bill seeks to make is to give the FSA the ability to
use its powers under section 45 of FSMA where the people whom the FSA
is seeking to protect are not actually customers of the firm that the
FSA is taking action against. Therefore, the FSA is not only trying to
protect the firm’s existing customers but people who have no
relationship whatsoever with the firm. It is not clear to me why the
FSA needs those powers. If the FSA sought to act now to vary the
permission of that firm to prevent it from dealing with existing
customers, by definition people who might be customers in the future
but who do not have an existing relationship with the firm will
automatically benefit from the exercise of those powers by the
FSA.
I wondered if
this measure aims to prevent a firm from commencing an activity, so the
firm would have no existing consumers at all and the FSA is only trying
to protect prospective consumers. However, if that is the case why
would the FSA have given that firm permission to undertake those
activities in the first place if it did not think that it was fit to
undertake them?
So I am not
quite sure what we gain by adding this extra power. Who are we trying
to protect who is not already protected by the existing powers set out
in section 45 of FSMA?
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