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"The Council, acting in accordance with a special legislative procedure, shall unanimously and after consulting the European Parliament adopt a decision laying down the provisions relating to the system of own resources of the Union. In this context it may establish new categories of own resources or abolish an existing category."
In all the discussions about the Lisbon treaty, and about the European constitution before it, that was seen as one of the key articles that would allow the EU to levy its own taxes. When I raised the matter previously with the Minister he suggested that that would require unanimity in the Council of Ministers, and that I should not worry about it, especially under a Conservative coalition Government. However, I do worry about it, because the Bill is about trying to set up the law for the future.
Dare I say it, if the Bill had been in place under the last Government, I am sure that we would not have had a referendum even on the Lisbon treaty, given how it was sold to the UK Parliament as a mere tidying-up exercise. I will vote for the Bill tonight, but I ask the Minister to address my strong concerns about the British public. They do not want to be sold short, and they would be horrified to know that we might be voting for a Bill that would allow the EU to levy taxes, and that they would have no say.
I was three at the time of the last referendum on the EU, and ironically I do not want us to have a referendum in which the Government give away powers. However, it is important that the powers in the Bill are introduced soon to give the public confidence. Dare I put it in a way similar to my European parliamentary colleague Daniel Hannan? Pactio Europae censenda est.
In the time available, I should like to make four points on the substance. First, many hon. Members said of the significance condition that "significant" is not defined. Given how the previous Government reneged on their promised referendum on the Lisbon treaty-Opposition Members who are finally returning to their
seats will have heard that-it would be wise to legislate for the maximum certainty practicable. Will the Minister briefly set out the range of practical options presented by officials for catering with that residual uncertainty?
Secondly, on the selective list of policy areas that trigger a referendum, in 2014, the UK must decide whether to cross the Rubicon on an important justice and home affairs measure. We will need to decide whether to accept European Court of Justice jurisdiction over police and justice measures that pre-date the Lisbon treaty, or to opt out entirely. That is a monumental choice. Do we retain our British justice system, or do we embark on a road that leads to a pan-European model? Under the Bill, that decision would not trigger a referendum. On anyone's reckoning, that is a critical fork in the road, and it must be included in the list of matters that require a referendum, and the decision must be taken by the British people.
Thirdly-this is also on justice and home affairs-under the Bill, there are only a few matters on which Parliament must approve a decision to opt in. For example, the decision to opt in to the European investigation order would not require Parliament's approval. Immigration and asylum, on which the EU is driving forward far-reaching changes that will dilute our border controls if we opt in, are also left out.
Fourthly and finally, the intention behind the declaration of parliamentary sovereignty in clause 18 is welcome. However, has the Minister considered the warning that Professor Tomkins gave to the European Scrutiny Committee? He highlighted the risk that by legislating to safeguard sovereignty solely in the context of the EU, the courts may infer that Parliament cares less about sovereignty in respect of, for example, the expansion of human rights law and judicial legislation from the Strasbourg Court. That is one more reason for replacing, or at the very least amending, the Human Rights Act 1998. More generally, the Bill does nothing to defend the erosion of sovereignty by the European Court of Justice, and is confined to legislative transfers of power.
Mr Wayne David (Caerphilly) (Lab):
Before the debate, a number of colleagues told me that the debate would be like the Bill-boring and uninteresting. They were wrong, at least about the debate, which has been wide-ranging, passionate, forensic in its analysis of the Bill, and conducted, by and large, in a reasonable manner. We heard more than 20 speakers. The right hon. Member for Charnwood (Mr Dorrell), and the hon. Members for South Thanet (Laura Sandys), for Enfield North (Nick de Bois), for Cleethorpes (Martin Vickers) and for North East Somerset (Jacob Rees-Mogg) spoke in favour of the Bill. A handful of hon. Members spoke against the EU rather than the Bill as such, but many, including my right hon. Friend the Member for Rotherham (Mr MacShane), my hon. Friends the Members for Rhondda (Chris Bryant), for Ilford South (Mike Gapes)
and for Preston (Mark Hendrick), the right hon. Member for Wokingham (Mr Redwood) and the hon. Member for Hertsmere (Mr Clappison), expressed reservations-strong and not so strong-about the Bill.
I wanted to refer specifically to only three contributions. First, the hon. Member for Harwich and North Essex (Mr Jenkin) questioned whether the Bill was crudely political-he described it as a byzantine Bill. He asked when it will come into effect. Will the Minister respond to that? He also questioned, as did the hon. Member for Daventry (Chris Heaton-Harris), whether the Bill is an attempt, intentional or otherwise, to undermine the sovereignty of this and future Parliaments.
Secondly, the hon. Member for Westmorland and Lonsdale (Tim Farron), who by the way is a Liberal Democrat, said that the Bill is a firm example of a coalition product. I absolutely agree with him. The Bill is muddled and contradictory, and is indeed a fine example of the coalition product.
Thirdly, we heard a notable and informed contribution from the hon. Member for Stone (Mr Cash). He referred to the misleading explanatory notes and said that the Bill shows judicial activism on the march. He also said that it was an invitation to litigation and called it a mouse of a Bill-I would say it is more like a drowned rat.
There have been a number of common themes in the debate. Members on both sides of the House have highlighted the poor drafting of the Bill. It is unclear when a referendum would be held; it is unclear about when a passarelle would require an Act of Parliament or a referendum; and it is unclear whether the sovereignty clause adds anything to British law-it probably does not. The one thing that the Bill is clear about, however, is that it is a recipe for unending confusion. The Government promised red meat to their Eurosceptic Back Benchers, but what we actually have is a rancid old bone for us all to gnaw on.
The only people who will be happy with the Bill are the lawyers, who will revel in endless judicial reviews. The Bill is fundamentally flawed. It is a ham-fisted attempt to define our relationship with the European Union, but it fails to do so. Instead, we have a botched, esoteric, convoluted, obsessively intricate collection of ill-defined, half-baked, miasmic proposals-and that is just to start. The Bill will serve only to confuse and will satisfy and placate no one: it only underlines the confusion at the heart of the Government's European policy.
The Minister for Europe (Mr David Lidington): I think that the brevity of the speech by the Labour spokesman, the hon. Member for Caerphilly (Mr David), is indicative of the absence of content in the Opposition's case today. We have heard from no less than the Leader of the Opposition that he regards his policies as a blank sheet of paper, and that is what we have heard from the hon. Gentleman this evening.
Like the hon. Gentleman, I want to pay tribute to every right hon. and hon. Member who has taken part in the debate, and I am glad that so many Members, on both sides of the House, have managed to participate. I want to respond briefly to a number of specific issues, and then move on to the questions about clause 18 and
the referendum lock, which have occupied most of the debate. I might be unable to cover all the ground today, but I will look forward with relish to the five days of debate on the Bill on the Floor of the House-in Committee of the whole House and on Third Reading-in the new year.
My hon. Friends the Members for Harwich and North Essex (Mr Jenkin) and for Daventry (Chris Heaton-Harris) asked about the commencement of the Bill and whether it would take effect in the lifetime of this Parliament. As they know, the Government have made it clear, as a policy commitment, that we are not going to agree to any treaty change or new treaty that transfers additional powers or competences to the European Union for the duration of this Parliament. That is a policy commitment. Clause 21 provides for the commencement of the whole of part 3, including clause 18, on Royal Assent. The rest of the Bill comes
"into force on such day as the Secretary of State may...appoint."
To avoid any misunderstanding, however, I want to make it clear that the Government intend to use the provisions of the Bill for any future treaty change. The House will know that one such change is being contemplated now. We also expect to use the provisions on increased parliamentary control during the lifetime of the Parliament, because we expect that there will be some proposals, possibly including an agreement on a new multi-annual financial framework, that will trigger the need for an Act of Parliament under the terms of the Bill.
My hon. Friend the Member for Daventry also asked me whether it would be possible for a European prosecutor to be built up bit by bit, thereby avoiding a referendum. The Bill is very clear on that. The United Kingdom could not take part in either a European public prosecutor established under article 86.1 of the treaty or the extension of the powers of such a prosecutor, if set up, under article 86.4 without a referendum. As the treaty provides a specific treaty base for the establishment of a European public prosecutor, that action could not be taken on a different treaty base.
My hon. Friend the Member for Witham (Priti Patel) asked whether there would be any way for the European Union to prevent us from holding a referendum in this country. The answer to that question is no. There is nothing in the treaties that puts any constraints on the way in which the United Kingdom or any other member state decides how to cast its vote on a treaty amendment or a treaty change. The Bill sets out more stringent requirements before a British Minister can assent to something on behalf of this country at the European level. That is a matter for national law, not for European law.
Let me turn to the points made in particular by my hon. Friend the Member for Stone (Mr Cash), but also by a number of other hon. Ladies and Gentlemen, about clause 18. I want to be absolutely plain that the Government are not attempting through clause 18 to address the wider constitutional issue of the sovereignty of Parliament in the way alluded to by my hon. Friend the Member for Esher and Walton (Mr Raab) when he referred to the European convention on human rights and the Human Rights Act 1998, for example-or alternatively, it would be possible to talk about the sovereignty of Parliament and what that means in the context of the devolution settlements for Scotland, Wales and Northern Ireland.
What clause 18 does is more specific than that-this point was referred to by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). Clause 18 deals with the way in which European law, including judgments of the European Court of Justice, is given effect in this country. The clause asserts, for the first time in statutory form, what is already the position in common law as a consequence of decisions by various judges in leading cases: namely, that there is only one reason why European law has effect in this country, and one reason too why, where the two clash, European law is given primacy over United Kingdom law, and that is because Acts of Parliament-notably, but not exclusively, the European Communities Act 1972-provide for such effect to be given to European law.
Mr Cash: Does my hon. Friend agree that the very fact that this provision is being included in statute inevitably means that the courts will have the opportunity to apply the common law principle and that therefore he cannot, by a speech in the House of Commons, restrict the manner in which the courts subsequently interpret the provision?
Mr Lidington: What I would say to my hon. Friend is that to some extent we are repeating the exchanges that we enjoyed in his Committee yesterday. Clause 18 places firmly on the statute book a point of reference to which any future court that considers an argument about the source of authority for European law in this country must have regard. My hon. Friend the Member for North East Somerset put it in terms of turning the clock back to 1972. As my hon. Friend the Member for Harwich and North Essex said in an intervention, it is not the case that the argument that European law derives its authority solely from Acts of Parliament has gone unchallenged. It was not only in the prosecution arguments in the metric martyrs case, but in the obiter from Lord Justices Steyn and Hope, to which he referred, that a very different case was asserted-namely that, over time, European law has acquired some kind of autonomous authority in this country. Hitherto, the United Kingdom courts have rejected that argument and upheld the doctrine that it is only through Acts of Parliament that European law has authority here. The clause will provide in statute for the first time a clear point of reference to which the courts must have regard.
Mr Jenkin: My hon. Friend is dealing carefully with the points that have been raised, but will he treat seriously the evidence given to the European Scrutiny Committee by Professor Tomkins? At the end of his written evidence, he stated:
"If Parliament is of the view that its sovereignty requires to be freshly articulated and safeguarded in legislation, it would be well advised to proceed with great care and caution, lest the consequences of its actions come to be seen as the proverbial red rag to the bull."
Mr Lidington: We debated this matter at great length in Committee in January. A number of the learned academics who gave evidence to the European Scrutiny Committee discussed parliamentary sovereignty in broad constitutional terms, rather than in terms of the precise objective of clause 18, which is to recapitulate in statutory form the means by which European law is given effect in the United Kingdom.
I want to make it clear from the start that we are talking about a referendum lock on future treaty changes that transfer powers or competence-in particular, powers involving the surrender of vetoes-and that we are not seeking to overturn the terms of existing treaties. I know that that will disappoint a number of Members on both sides of the House, but, as my right hon. Friend the Foreign Secretary said in his opening speech, we are in a legal environment established by the Lisbon treaty, even though some of us might wish that we were not, and we must start from the position that we are now in.
Mr Lidington: The Government have made it clear that we would not assent to a transfer of competence or powers during the lifetime of this Parliament. It follows, therefore, that we do not expect a referendum in the lifetime of this Parliament, but unforeseen events might arise. The Bill, once it becomes law, will be binding on this Government as well as on any future Administration, whatever circumstances might arise.
Mr Lidington: No, I want to deal with the objections and criticisms that have been made to and of the referendum lock. Serious questions have been asked on both sides during the debate and I want to respond to them. One set of objections came from the hon. Member for Rhondda (Chris Bryant), who made it clear that he objected to all referendums as a matter of principle-
Mr Lidington: He is now saying that he does not, and I am happy to hear him qualify his earlier remarks. The problem with such an argument is that it ignores two things. First, it underestimates the depth of the mistrust and disaffection that people in this country now feel towards the way in which powers have been transferred from the United Kingdom to the European Union without the people ever being asked for their agreement. It ill becomes the Labour party in particular to offer criticism on this score when the prime reason for such disaffection over the last few years has been that party's refusal, when in government and with a majority in this House, to agree to the people having a referendum, which had been promised at the general election. This was a promise on which Labour was happy to renege when it came into office.
The argument against referendums on principle ignores the fact that the practice has grown up in the last 13 years of holding referendums on major constitutional changes. We have had them in Scotland, Wales, Northern Ireland, Greater London and even in the north-east of England, and I think that people now have a reasonable expectation that they will be invited to have their say if their basic constitutional rights are being affected by legislation proposed by Ministers.
Mr Lidington: The second line of criticism was rather more subtle than that presented by the hon. Member for Rhondda. It was articulated by a number of colleagues, including my hon. Friend the Member for Richmond Park (Zac Goldsmith), who argued that the Bill left too much discretion to Ministers. My hon. Friends the Members for North West Leicestershire (Andrew Bridgen) and for Witham echoed that argument.
My response is that a number of options were available to us. One was to draft a test phrased in fairly general terms, saying that an important measure would require a referendum, but leaving it to the Government of the day to determine whether that test had been met. We took the view that that would have left far too much discretionary power in the hands of Ministers. What we have done instead is to introduce a Bill that quite deliberately limits ministerial discretion by specifying those changes that would trigger a referendum and also those limited categories of treaty change that would be exempt from the referendum requirement.
Several hon. Friends talked about the significance test, which applies only to a change brought forward under the simplified revision procedure. Within that category of treaty change, it applies only if the sole reason for its falling within the referendum lock is that it falls under clause 4(1)(i) or (j). Any proposal that is covered by clause 4(1)(a) to (h) or clause 4(1)(k) to (m) automatically attracts a referendum. In reply to a direct question put to me, yes, if this Bill had been law at the time, the Lisbon treaty negotiated under the ordinary rules of procedure would have required a referendum before it had been ratified. I only wish we had had such a provision on the statute book when the Labour party betrayed this country's interests and reneged on the promises it had given.
My hon. Friend the Member for Hertsmere (Mr Clappison) argued that the significance was subject only to judicial review and not to Parliament. Of course it is true that any Executive decision by any Minister is liable to judicial review. I dispute his argument, however. Irrespective of whether the significance test applies and whether a referendum is required, any treaty change, however minor, will require an Act of Parliament for its ratification. Such an Act will be subject to full debate and scrutiny and will be capable of amendment in whatever way Parliament wishes.
Mr Lidington: Through this Bill we are making the Government more accountable to the British people for what they do in Europe. We are ensuring that any new proposal to take powers from this place to Brussels will involve the people in having the final say. I commend the Bill to the House.
That the following provisions shall apply to the European Union Bill:
1. The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on consideration and Third Reading
2. Proceedings in Committee, any proceedings on consideration and proceedings on Third Reading shall be completed in five days.
3. The proceedings shall be taken in the order shown in the first column of the following Table.
4. The proceedings shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table.
5. Standing Order No. 83B (programming committees) shall not apply to proceedings in Committee, to any proceedings on consideration or to proceedings on Third Reading.
6. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords may be programmed.- (James Duddridge.)
That, for the purposes of any Act resulting from the European Union Bill, it is expedient to authorise-
Hilary Benn (Leeds Central) (Lab): On a point of order, Mr Speaker. The Government are clearly in a state of chaos when it comes to tuition fees. Yesterday, the Leader of the House tried to move a motion and it was objected to, much to the anger of the Chief Whip, as you know. Today, the Leader of the House tabled one motion in his own name and two motions in the name of the Prime Minister but, as we have just seen, did not have the courage to move the motion in his own name.
I am sure that you understand the deep sense of anger that there is in the House at the amount of time that the Government are proposing to give Members on Thursday to debate the biggest change in tuition fees
and support for higher education that we have ever seen. Since the House is being treated with contempt by the Government, may we now have a statement from the Leader of the House to tell us what on earth is going on? Will he indicate how much time we will have on Thursday to debate the increase in tuition fees? [Interruption.]
Mr Speaker: Order. I am grateful to the right hon. Gentleman for his point of order. The concern of the Chair is always that matters should be handled in an orderly manner. [Interruption.] Order. That has happened, whatever the disquiet or consternation the right hon. Gentleman or others may feel. I know that he will understand that it would not be right for me, from the Chair, to say anything more on the matter. His concerns have, however, been forcefully registered.
Mr Gareth Thomas (Harrow West) (Lab/Co-op): Further to that point of order, Mr Speaker. I expected to be debating with the Minister for Universities and Science tonight, yet we have not had even the courtesy of an explanation why the Government have not moved their motions tonight. Have you been given an explanation? How can it be acceptable that students will be saddled with £39,000-worth of debt after just three hours of debate in the House-£13,000 of debt for each hour of debate?
Mr Speaker: My simple response to the hon. Gentleman is that it would not be right now to rehearse matters of substance relating to the tuition fees debate, which there will be an opportunity to develop on Thursday. I am sure the hon. Gentleman looks forward to that opportunity. He, too, has put his concerns explicitly on the record.
Mr Speaker: I call Tessa Munt. [Interruption.] I note the considerable excitement in the House, and I am concerned that the hon. Lady should be able to develop her case on the regulation of foreign exchange services and the case of Crown Currency Exchange. I therefore appeal to right hon. and hon. Members leaving the Chamber to do so quickly and quietly, and to afford the hon. Lady the same courtesy as they would wish to be extended if they themselves had the Adjournment, so I hope there will be no further animated conversations, even between very senior Members.
Tessa Munt (Wells) (LD): Thank you, Mr. Speaker. I particularly thank the Minister for attending this evening to reply to this debate on the failure of Crown Currency Exchange. This is a matter that particularly concerns my constituents, Nick and Larissa Fry from Axbridge, and I also speak on behalf of a retired bank manager from Holcombe in the neighbouring constituency of the Deputy Leader of the House, my hon. Friend the Member for Somerton and Frome (Mr Heath).
The problem as far as I understand it is that companies such as Crown Currency Exchange are registered with the Financial Services Authority, but the legislation governing its activities looks at the size of the company, not at what it is doing. Crown Currency Exchange appears to have been behaving a bit like a high street bank or foreign currency exchange, and was registered as a small payments institution. As I understand it, it was meant to operate under an average of €3 million a month, but it appears from the administrator's report that for the last 10 months the trading average was at about €10 million a month.
The legislation appears to exclude 547 small payments institutions in particular, from all of the many thousands of companies that are registered with the FSA. I want particularly to draw the House's attention to the FSA website, which states that the FSA's general duties
"in so far as reasonably possible"
"market confidence, public awareness, protection of consumers and a reduction of financial crime."
"the regulator of all providers of financial services in the UK",
and for that reason alone it is within certainly a retired bank manager's understanding, my original understanding and the understanding of most people that these companies are in some way controlled by the FSA.
Crown Currency Exchange displayed on its website, besides the FSA logo, that of Her Majesty's Revenue and Customs, which was clearly for money-laundering purposes. People are therefore entitled to feel that there should have been some sort of cover for the activities that that company undertook.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab):
A number of my constituents who have been involved with CCE have also contacted me. Is
it not equally despicable that the company sought to suggest that the lucrative exchange rates for the US dollar that it was actively advertising were the result of orders that had been cancelled, which allowed it to offer these fabulous terms, when in actual fact it had no currency, and it simply wanted to bring cash flow in to continue trading? Is that not a major concern that should have been picked up by the FSA?
Tessa Munt: That is quite correct. It certainly seems to be the case that on several occasions a number of people brought these problems to the attention of the FSA, one of whom was Robin Haynes, the managing director of Currency Index Ltd. He raised concerns about Crown Currency Exchange with the FSA in March 2009 and September 2010. He raised his concerns with HMRC in September 2010 and with Barclays, Crown Currency Exchange's bankers, in May 2009. None of those appears to have been acted on.
There is also the case of a whistleblower who reported his concerns to the companies investigations branch of the Insolvency Service on 20 August 2009, but again nothing appeared to happen. It seems that none of those bodies is able to investigate a company until it has done something completely awful to its customers.
Mr Russell Brown (Dumfries and Galloway) (Lab): I congratulate the hon. Lady on securing the debate, because it has been stipulated that Barclays bank raised concerns about the company prior to its collapse but kept quiet. Does she, like me, believe that that should be further investigated?
Tessa Munt: I hope so, because so many people were taken in by the idea that they had some security, and Barclays probably should have done something. I understand that there was a meeting between one or two company directors and their bankers, Barclays, on 21 July, and that there were concerns at the time about the company's solvency, yet for some months afterwards people still tried to put their money into the company, without any results.
"I think everyone would agree that if one is registered with the FSA it implies that that actually means something-it didn't"?
"We keep an up-to-date record of all FSA-regulated firms, bodies and individuals doing business in the UK. Our register is available to the public, so you can search for more information on all of our authorised firms."
The problem is that the FSA seems to use "registered", "regulated" and "authorised" almost conversationally, but in legal terms those definitions should not be bandied around on its website in such a way.
Jim Shannon (Strangford) (DUP): Throughout the whole United Kingdom, not just on the UK mainland, but in Northern Ireland, those who can least afford it have invested money in that system. I understand that a police investigation started today. Does the hon. Lady agree that, on the back of that investigation, a Government investigation should follow?
Andrew George (St Ives) (LD): Arrests have been made, including of one of my constituents. Indeed, the company's offices were based in Hayle in my former constituency. The case has given rise to enormous concern, and although it is not on the same scale as sub-prime casino banking it has left many people in serious circumstances. I hope that my hon. Friend will advance her case, because this situation clearly needs to be regulated in future.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op): I, too, congratulate the hon. Lady on securing the debate. The presence of so many Members shows the scale of the problem. My constituents believed that "registered" actually meant something in law. Does she agree that that has to be addressed urgently to ensure that no one else loses out?
Tessa Munt: I could not agree more. One problem I have discovered is that, although in the registration process the FSA takes receipt of £500, it is an overseer and not in any way, shape or form a regulator. The directors and responsible officers of a company have to declare under registration unspent criminal convictions for financial crimes, terrorist funding, money laundering and fraud, but there are two difficulties with that. First, the punishment for not doing so appears to be no more than three months in jail, and, if one is rocking along with £100 million, that is probably worth it. The other thing is that it appears that the FSA has absolutely no means of checking the information because it has no access to the Criminal Records Bureau. Registration is clearly not effective; we need to look at regulation for all these companies.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): I am grateful to the hon. Lady; she has taken a number of interventions, although she has limited time to make her case. I congratulate her on securing the debate. Does she share my concern? I have raised constituents' cases with the FSA, but I have not had any replies at all.
"We are unable to look at your case under our complaints scheme as your complaint falls outside the scope of the scheme...However, we will deal with the complaint...It appears that registered companies are not part of the complaints scheme."
It seems a little confused. To be honest, if the FSA does not know what falls within and without the complaints scheme, it will be difficult for any member of the public who has been brought into the situation with a false sense of security.
Mr Robin Walker (Worcester) (Con):
I congratulate the hon. Lady on securing this important debate. On behalf of my constituent Chris Neath, who lost more than £3,000 in this scandal, I would like to ask this question. Does she agree that we must remove the
confusion among the public between registration and regulation? We should make it clear in this debate that the FSA must take a much stronger line on companies of this size and this sort.
Tessa Munt: Absolutely. I hope that that will be part of the outcome. I ask the Minister in particular whether he would agree to meet members of the group Action against Crown Currency Exchange, me and other Members whose constituents have an interest, so that we can explore what might be done. It certainly seems to me that the legislation does not allow the FSA to operate in an effective way. Perhaps it is for the House to deal with that.
Mr Wayne David (Caerphilly) (Lab): What message can the hon. Lady give to my constituents, and many others across the country who have lost large sums of money, about what hope they might have of compensation?
Tessa Munt: I am an optimist, so I hope that we might be able to do something, but it would appear that the directors of the company have operated through a loophole in the scheme. I suspect that they were very savvy and knew exactly what they were doing. They have registered rather than being regulated or authorised. Some 13,000 people have lost £20 million and there is enormous distress and dismay about what has happened.
Dan Byles (North Warwickshire) (Con): I am grateful to my hon. Friend for giving way, as I am conscious that time is pressing. I join colleagues in congratulating her on securing this debate. Does she have any idea about how many other companies are registered but not regulated by the FSA?
Tessa Munt: I am not aware of the numbers; I am aware only that there is a peculiarity relating to 547 small payments institutions that do not seem to be regulated as other companies are. I hope that the Minister will give some response to the questions that have been raised.
Andrew Selous (South West Bedfordshire) (Con): Does the hon. Lady share my concern that the business of Crown Currency Exchange was apparently regarded as low risk, when anyone with a basic grasp of economics could see the massive risk inherent in currency fluctuation up to a year in advance?
Tessa Munt: It is certainly clear that a number of people alerted various sections of the authorities. A year ago, the Financial Times and the financial pages of The Daily Telegraph and The Mail on Sunday were raising concerns, and they were right to do so.
"In our judgement it would not be possible for the FSA to ban firms such as CCE from describing themselves as "registered for payment services". Any amendment to the register requirements in the Payment Services Regulations would be a matter for HM Treasury."
The Financial Secretary to the Treasury (Mr Mark Hoban): I congratulate the hon. Member for Wells (Tessa Munt) on securing a debate on this important topic. The fact that there are 40 Members here tonight demonstrates the widespread interest across the House in what has happened to Crown Currency Exchange. I am glad to have the opportunity to explore the collapse of Crown Currency Exchange and touch more broadly on how foreign exchange services are regulated.
I share the hon. Lady's concern about the impact of the failure of Crown Currency Exchange. I have enormous sympathy for the 13,000 people who have been affected by its collapse. They are honest, hard-working people who have been hit hard and, in some cases, the losses have been considerable. I welcome the work of the administrators in investigating the issues surrounding Crown's collapse, and their efforts to recover as much money as possible for the consumers affected. The administrators have written to the creditors, and have held a creditors' meeting to discuss their proposals. They will continue to review Crown's trading operation, its financial position and the conduct of its directors. I look forward to receiving the administrators' report, so that the Government can consider what lessons can be learned from it and assess what might need to be done to protect customers in future.
Crown Currency Exchange operated an online bureau de change-put simply, it bought and sold currency over the internet, which is quite normal in modern day currency exchanges. However, what separated Crown from other operators was that it was among a minority of companies whose customers paid for their foreign currency weeks or months before they were due to receive it. Some other aspects of its operations were also unusual. It offered much better rates than those on the high street and enticed customers by offering special deals purporting to be from cancelled contracts that did not exist. It did not hedge its exposure to foreign exchange rate changes, so it was at risk if sterling moved against it, and it took payment in full and in advance, for up to a year before delivery. In addition, it did not accept payments by debit or credit card. Crown's business model was an outlier, which posed risks to the firm and, as we know, to consumers. The way in which Crown operated meant that consumers lacked protection because they were unable to pay by debit or credit card.
I do not wish to prejudge the causes of Crown's failure. The administrators' final report, which is expected in a few months, will go over that in detail, and look at the conduct of the company's directors. Let me touch on the regulatory questions raised by the failure. As we have heard, Crown Currency Exchange was registered by the Financial Services Authority as a small payments institution, which means that it managed payments from one person to another. Such institutions may handle the remittances from migrant workers to be sent home to their families, or they may offer an internet service for making payments in competition with the banks.
European legislation-the payment services directive-provides for light touch regulation of small payments institutions. That was the case with Crown, which had some reporting obligations to the FSA. However, the FSA was not required to exercise any prudential regulation, such as oversight of capital requirements over Crown; it
was required only to oversee its payments. Buying and selling foreign currency is not a regulated activity, so Crown's foreign currency sales were not regulated by the FSA. The regulatory requirements relating to foreign currency sales are limited to quoting rates clearly, which the FSA oversees, and complying with money laundering legislation, which Her Majesty's Revenue and Customs oversees. The money laundering rules are designed to fight terrorism and crime, not to protect customer deposits. That is why neither the FSA nor HMRC was in a position to investigate or address any problems with the business model of Crown Currency Exchange.
Mr Dominic Raab (Esher and Walton) (Con): A number of my constituents have also lost money in this case. I recognise the limited remit of the FSA, but should it have registered CCE when, as I understand it, one of CCE's directors had a criminal conviction? Was that an example of maladministration, or will that be reviewed?
Mr Hoban: Often in these cases-I do not want to go into detail on this-the FSA is dependent on disclosure by directors. As the hon. Lady said, the FSA does not have the power to access criminal records to enable it to find out whether directors' disclosures are accurate.
The question that we need to address is why foreign exchange services are not more tightly regulated. Traditionally, buying and selling currency is the same as buying and selling any other commodity, whether it is gold and silver or food and drink. With the exception of Crown, this kind of trading has been, and remains, a low risk business. It is something that millions of us do day in, day out, whether at the post office, in banks or at bureaux de change, without a problem. But Crown's business model was different, and what should have been straightforward transactions led to substantial losses for its customers. I accept, of course, that Crown has inflicted substantial losses on customers. The Government are anxious to learn the lessons from this failure and to take what action may be needed, including regulatory changes.
Mr Dennis Skinner (Bolsover) (Lab): A lot of people have lost money, including people in my constituency and loads of others. Does the Minister think that, as in the case of Equitable Life, it would be a good idea to make sure that the financial ombudsman has a look at this case?
Mr Hoban: It is not a matter for the ombudsman-it is for the administrator to decide what further actions are needed. As I said, the problem is that the nature of this business was such that it fell outside the regulatory perimeters. It is not covered by the Financial Ombudsman Service or the financial services compensation scheme, so there is a distinction between this case and the one to which the hon. Gentleman refers.
I want to reassure hon. Members that I am anxious to protect customers and that we should learn lessons from this. I would point out, however, that there are 1,480 businesses operating as bureaux de change in this country, the vast majority of which are retail outlets dealing with customers face to face. The majority of these firms are not taking payment in advance or entering into forward currency contracts. They do not expose their customers to the kind of risks that Crown appears to have done.
The regulation of these businesses, including capital requirements, would impose costs on them and on their customers, so we must be sure that the benefits of regulation outweigh the cost to consumers. I assure hon. Members that we are looking at the other companies to see if any are operating in the same way as Crown. We have not yet identified any, although the investigation is still ongoing. I undertake that the Government will seek to learn the lessons from Crown's failure, once we have all the facts, and take whatever action is appropriate.
I recognise that there are innocent victims at the heart of this, but because Crown's activities are not regulated by the FSA, its customers are not covered by the financial services compensation scheme. Crown did not accept credit card or debit card payments, so its customers are not covered by the protection they offer, and I am afraid that they are therefore awaiting the outcome of the administration process. I believe that it is vital that consumers understand their rights and what products and services are covered by the FSCS. I welcome the fact that the FSCS is launching a campaign in the new year to raise consumer awareness and encourage them to seek more information on what is and is not covered by the scheme. However, I also believe that there is a responsibility on companies to be up front with their customers about the protection that is available if something goes wrong, particularly where the business is complex, as was the case with Crown.
Tessa Munt: Exactly what purpose is served by registering a small payments institution with the FSA? Given that the FSA makes it perfectly clear that it denies any regulatory involvement with small payments institutions, of which there are 547, I am not entirely sure for what one is paying £500.
The hon. Lady makes an important point, but the reality is that this activity falls outside the regulatory perimeter of the FSA. The reason these businesses are registered with the FSA is that when the payments services directive was introduced, there had to be somewhere for these businesses to be registered, so the decision was taken to register them with the FSA.
That decision was taken not by this Government, but by the previous Government. The hon. Lady is right that that situation leads to some confusion for consumers. The reality is that such businesses were not regulated by the FSA. The same applies to the other 1,500 bureaux de change that operate under this model.
Mr Hoban: Barclays had a limited relationship with Crown. It did not lend money to Crown, but simply provided it with a bank account. It raised a number of questions with Crown, but the answers gave no cause for concern. It acted simply as Crown's bank and had no engagement in the business.
Mr Russell Brown: I could ask the Minister when he believes that my constituents will receive money and how much, but I want to come back to the fact that the company was classed as a small payments institution, despite its turnover putting it in a category that meant it should have been regulated. Is he in a position to instruct the FSA to look at the more than 500 other companies that are small payments institutions to see whether they fall into a regulated category?
Mr Hoban: When the €3 million figure is exceeded, a company should be regulated, but that figure refers to the average monthly payment transaction. A company can therefore be turning over €36 million a year and still fall below the threshold for registration.
To conclude, I agree with the hon. Lady that the collapse of Crown Currency Exchange has hit 13,000 innocent victims and that, in some cases, the losses have been substantial. We all agree that that should not happen again, that we have to learn the lessons from Crown's failure and that we must take all the steps necessary to ensure that consumers are better informed about the risks that they take and the rights that they have. We will be able to determine the action to be taken by the Government or the regulators only once we have received the report. We will look at the costs and benefits of regulation. I remind the hon. Lady that in last week's debate on the retail distribution review, she pointed out the risk that more regulation poses to businesses.
We must ensure that there is proper regulation for consumers. We must learn the lessons from Crown to ensure that we put the right protection in place for consumers, given the risks involved. I assure hon. Members who take an interest in this matter that I will keep them up to date with what is happening with Crown. I recognise from the number of hon. Members present in the House tonight how important-