The work of the Sub-Committee on Financial Services Regulations

1 Remit and approach of the Sub-Committee

1. We set up the Treasury Sub-Committee on Financial Services Regulations (‘the Sub-Committee’) in June 2022 to examine changes to regulatory text proposed by the Financial Conduct Authority (FCA), the Bank of England, the Prudential Regulation Authority (PRA) or the Payment Systems Regulator (PSR).

2. The Sub-Committee takes a targeted approach to scrutinising proposed regulations put forward by these regulators. It has agreed to consider regulatory proposals which:

• Have been put forward by a regulator for which the Treasury Committee has oversight responsibility;
• Are at consultation stage, when the Sub-Committee could best exert influence; and
• Contain a draft text which has legal effect.

3. When reviewing such proposals, the Sub-Committee considers the following factors in considering the degree of additional scrutiny warranted:

• Does the proposal have a significant impact on consumers?
• Does it have a significant disproportionate cost for firms?
• Does it incorporate any politically significant proposals?
• Is it a new activity that has not been regulated before?

4. The Sub-Committee takes a view on what form of additional scrutiny is appropriate for each regulatory proposal consultation, and is a forum for oral evidence when merited. Depending on the subject, external deadlines, and the amount of oral and written evidence the Sub-Committee decides to take, an inquiry may give rise to a report to the House, published by the Treasury Committee. Other inquiries may simply consist of oral evidence without a report. Furthermore, the Treasury Committee may choose to raise issues relating to proposals considered by the Sub-Committee—such as the broader regulatory approach—with the relevant regulators during its regular scheduled accountability sessions.¹

5. The Sub-Committee will also, from time to time, consider draft affirmative Statutory Instruments (SIs) laid by the Government in relation to the Edinburgh Reforms and financial services regulation more widely. The Sub-Committee indicated its intention to look at such SIs in recent correspondence with the Economic Secretary to the Treasury.²

6. It is anticipated that the Sub-Committee will conduct a sifting meeting around once every two months, and publish Reports on an approximately quarterly basis. Each Report will include a rolling Annex, outlining all the proposals the Sub-Committee has looked at during the current Session, and will be published on both the Sub-Committee and Treasury Committee’s respective websites.

7. This is the second Report on the work of the Sub-Committee on Financial Services Regulations. The first Report was published on 21 December 2022.³

2 Continuing work

Further work arising from the October 2022 sift

PSR CP22/4 - Authorised push payment (APP) scams: Requiring reimbursement

8. Following its October 2022 sift meeting, the Sub-Committee wrote to the PSR to ask questions about this proposal, primarily in relation to the Financial Ombudsman Service’s ability to deal with complaints which would arise as a result of these changes, and who would be responsible for imposing sanctions on firms which did not comply with the new rules.⁴

9. The Sub-Committee then held an oral evidence session on CP22/4 with the Payment Systems Regulator, Pay. UK and the Financial Ombudsman Service (FOS) on 13 December 2022.⁵

10. On 25 January, the Sub-Committee wrote further letters to:

• the PSR, requesting further information about the purported £100 threshold for eligibility for reimbursement,⁶ to which the PSR responded on 14 February;⁷
• the FCA, requesting information about ‘on us’ fraud reimbursement,⁸ to which the FCA responded on 13 February;⁹
• the Bank of England, requesting information about the reimbursement for APP fraud in the CHAPs payment system,¹⁰ to which the Bank responded on 10 February;¹¹ and
• the FOS, requesting further information about resolution to APP fraud reimbursement disputes,¹² to which the FOS responded on 9 February.¹³

11. We published our Report, Scam reimbursement: pushing for a better solution (HC 939), on 6 February 2023.¹⁴ In the Report we called for the PSR to rethink the proposals set out in CP22/4, given our concerns that Pay. UK was conflicted in its proposed role in the reimbursement scheme, that it lacked the enforcement powers of a regulator and that the proposals were a recipe for further unacceptable delay.¹⁵ The response to the Report is due on 6 April 2023.

3 Sift meetings and decisions

December 2022 sift

12. As detailed in our previous Report, The work of the Sub-Committee on Financial Services Regulations (HC 952), the Sub-Committee considered the proposals set out in Table 1 at its meeting on 13 December 2022.

Table 1

13. The Sub-Committee decided to request further information from regulators on the following proposals:

• PRA CP12/22 - Risks from contingent leverage, jointly with PRA CP14/22 - Review of Solvency II: Reporting phase two
• FCA CP22/20 - Sustainability Disclosure Requirements (SDR) and investment labels
• FCA CP22/24 - Broadening access to financial advice for mainstream investments

Further details on this correspondence are provided below.

PRA CP12/22 - Risks from contingent leverage, jointly with PRA CP14/22 - Review of Solvency II: Reporting phase two

14. On 20 December 2022, the Sub-Committee wrote to the Prudential Regulation Authority to ask the following questions on PRA CP12/22 and PRA CP14/22:

• How does the PRA keep track of the cumulative cost to firms of these proposed new reporting requirements?
• What process does the PRA have in place to make sure that all existing data being collected is still being used as intended, and that data which is no longer required is no longer requested?¹⁶

The PRA responded on 9 January 2023.¹⁷

FCA CP22/20 - Sustainability Disclosure Requirements (SDR) and investment labels

15. On 20 December 2022, the Sub-Committee wrote to the Financial Conduct Authority to ask the following questions on FCA CP22/20:

• How does the FCA intend to monitor and enforce these new rules? Does the FCA have sufficient expertise in this area?
• How has the FCA sought to balance the benefits of introducing sustainability disclosures and investment labels against the potential risk of reducing consumer choice in this sector?
• What market distortions does the FCA anticipate could be created as a result of these measures? How will those distortions be mitigated?
• The consultation suggests two thirds of the 450 UK funds currently claiming to operate sustainable funds will change their marketing as a result of these measures. What is the basis for this assumption and how much uncertainty is there around this figure?
• To what extent do the two thirds of UK funds, that are not expected to meet the proposed sustainability criteria, currently offer some level of sustainable investing?
  • What does the FCA expect will happen to any sustainable investments currently held by these two thirds of firms? Does the FCA expect the overall level of sustainable investing by these two thirds of firms to decline following the introduction of these rules?
  • In the short and medium term, does the FCA expect the net effect of these proposals will increase or reduce total sustainable investment in the UK?
• Does the FCA expect that these measures will lead to an increase in fees charged by: (a) funds and (b) distributors of sustainable products? If yes, does the FCA have any concerns that this could reduce the competitiveness of these products?
• What can the FCA do with its proposed ‘anti-greenwashing’ rule that it could not previously do with its existing financial promotions rules? Are there circumstances where this new rule would apply but existing rules would not?
  • Are there any additional powers, outside of the FCA’s current remit, that would be helpful for reducing misleading sustainable promotions?
• How will the FCA treat funds that meet sustainable labelling and investment disclosure requirements in the EU, US or other jurisdictions?
• Will these proposals limit UK investors’ ability to invest in funds managed outside of the UK?¹⁸

The FCA responded on 9 January 2023.¹⁹

16. Following this exchange of correspondence, the Sub-Committee held an oral evidence session on CP22/20 on 22 February 2023,²⁰ during which it heard from two panels of witnesses:

• James Alexander, Chief Executive at UK Sustainable Investment and Finance Associate (UKSIF); Chris Cummings, Chief Executive at The Investment Association; and Kate Levick, Associate Director of Sustainable Finance at E3G.
• Sacha Sadan, Director of Environment, Social and Governance at the Financial Conduct Authority; and Mark Manning, Technical Specialist for Sustainable Finance and Stewardship at the Financial Conduct Authority.

17. The Sub-Committee then wrote again to the FCA, requesting a new Cost Benefit Analysis which estimates the monetary and other costs to consumers of the FCA’s proposals, and to ask questions on the FCA’s plans regarding enforcement and international convergence.²¹

FCA CP22/24 - Broadening access to financial advice for mainstream investments

18. On 20 December, the Sub-Committee wrote to the Financial Conduct Authority to ask the following questions on CP22/24:

• What is the estimated price point that the FCA expects for core investment advice fees?
  • Does the FCA have any evidence to suggest these proposals will create a market with: (i) sufficient consumers willing to pay this lower fee; and (ii) sufficient firms willing to offer core investment advice?
• How will the FCA ensure that the quality of core investment advice will be comparable with existing financial advice?
  • What are the potential risks of lowering Training and Competence standards?
  • How will the FCA ensure that firms do not offer core investment advice inappropriately to consumers who may need advice on a wider range of issues?
• Will a Stocks and Shares ISA always be an appropriate product option for consumers seeking core investment advice, for example consumers who do not pay tax?
• Do these proposals address concerns from firms that they could be liable for mis-selling?
• How does core investment advice compare with previous attempts to encourage firms to offer cheaper and more streamlined financial advice? Why will these proposals be more successful?
• Will consumers have access to the Financial Ombudsman Service and the Financial Services Compensation Scheme if they receive core financial advice?
• When asked about the introduction of personalised financial guidance during the Report Stage of the Financial Services and Markets Bill, the Economic Secretary to the Treasury stated “I am happy to confirm that we will pursue it with great urgency… it goes some way to address the issue [that only the wealthiest can access financial advice], so I will look at it as a basis for potentially moving forward”.²² How will the FCA ensure core investment advice rules synchronise with any such Treasury reforms in this area?²³

The FCA responded on 9 January 2023.²⁴

January 2023 sift

19. The Sub-Committee considered the proposals set out in Table 2 at its meeting on 25 January.

Table 2

20. The Sub-Committee decided to request further information from regulators on the following proposals:

• FCA CP22/27 - Introducing a gateway for firms who approve financial promotions
• FCA CP22/23 - Regulatory fees and levies: policy proposals for 2023–24

The Sub-Committee’s correspondence, and the responses received from regulators, will be published in due course.

March 2023 sift

21. The Sub-Committee considered the proposals set out in Table 3 at its meeting on 7 March.

Table 3

22. The Sub-Committee decided to request further information from regulators on the following proposals:

• FCA CP23/1 - Insurance guidance for the support of customers in financial difficulty
• FCA CP23/5 - Debt packagers: feedback on CP21/30 and further consultation on new rules and perimeter guidance
• FCA CP23/3 and PRA CP1/23 - Financial Services Compensation Scheme - Management Expenses Levy Limit 2023/24²⁵

The Sub-Committee’s correspondence, and the responses received from regulators, will be published in due course.

Annex: Consultation Paper tracker, as at 14 March 2023

Formal minutes

Members present:

Harriett Baldwin, in the Chair

Rushanara Ali

John Baron

Anthony Browne

Douglas Chapman

Dame Angela Eagle

Danny Kruger

Andrea Leadsom

Anne Marie Morris

Siobhain McDonagh

Draft Report (The work of the Sub-Committee on Financial Services Regulations) proposed by the Chair, brought up and read.

Ordered, That the Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 22 read and agreed to.

Annex agreed to.

Resolved, That the Report be the Fourteenth Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Adjourned till Tuesday 21 March 2023 at 9.30 am.

List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2022–23

Session 2021–22

Session 2019–21

Footnotes

1 In our routine work, we hold regular oral evidence sessions with the FCA and the PSR and PRA. We also hold evidence sessions with the Bank of England after the publication of every Monetary Policy and Financial Stability Report.

2 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Economic Secretary to the Treasury, relating to the illustrative statutory instruments published as part of the Edinburgh Reforms, dated 31 January (22 February 2023); Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Economic Secretary to the Treasury, relating to the illustrative statutory instruments published as part of the Edinburgh Reforms, dated 13 February (22 February 2023)

3 Treasury Committee, Tenth Report of Session 2022–23, The work of the Sub-Committee on Financial Services Regulations, HC 952

4 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Interim Chair to PSR relating to push payment fraud, dated 28 October (24 November 2022)

5 Oral evidence taken on 13 December 2022, HC 939

6 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Payment Systems Regulator, relating to APP fraud, dated 25 January (2 February 2023)

7 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Payment Systems Regulation, relating to APP fraud reimbursement, dated 9 February (2 March 2023)

8 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Financial Conduct Authority, relating to APP fraud, dated 25 January (2 February 2023)

9 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Financial Conduct Authority, relating to APP fraud reimbursement, dated 13 February (2 March 2023)

10 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Bank of England, relating to APP fraud, dated 25 January (2 February 2023)

11 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Bank of England, relating to APP fraud reimbursement, dated 10 February (2 March 2023)

12 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Financial Ombudsman Service, relating to APP fraud, dated 25 January (2 February 2023)

13 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Financial Ombudsman Service, relating to APP fraud reimbursement, 9 February (2 March 2023)

14 Treasury Committee, Thirteenth Report of Session 2022–23, Scam Reimbursement: pushing for a better solution, HC 939

15 Treasury Committee, Thirteenth Report of Session 2022–23, Scam Reimbursement: pushing for a better solution, HC 939, para 45

16 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from Chair to the PRA relating to increased level of reporting, dated 20 December 2022’ (30 January 2023)

17 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from PRA relating to increased level of reporting, dated 9 January 2023’ (30 January 2023)

18 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from the Chair to FCA relating to Sustainability Disclosure Requirements (SDR) and investment labels, dated 20 December 2022’ (30 January 2023)

19 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from FCA relating to Sustainability Disclosure Requirements (SDR) and investment labels, dated 9 January 2023’ (30 January 2023)

20 Oral evidence taken on 22 February 2023, HC 1150

21 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from the Chair to the Financial Conduct Authority relating to Greenwashing: sustainability disclosure requirements, dated 9 March’ (9 March 2023)

22 HC Deb, 7 December 2022, col 397

23 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from the Chair to FCA relating to broadening access to financial advice for mainstream investments, dated 20 December 2022’ (30 January 2023)

24 Treasury Sub-Committee on Financial Services Regulations, ‘Correspondence from FCA relating to broadening access to financial advice for mainstream investments, dated 9 January 2023’ (30 January 2023)

25 The Sub-Committee agreed to write to the regulator and also directly to the Financial Services Compensation Scheme on this CP