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 regulations 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 it 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. The Sub-Committee will continue to meet for 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 third Report on the work of the Sub-Committee on Financial Services Regulations. It covers the period of the Committee’s work up between 21 March and 21 June 2023. The first Report was published on 21 December 2022, and the second on 20 March 2023.³

Specialist Advisers

8. Under Standing Order No. 152(4)(b), the Treasury Committee appointed two Specialist Advisers to assist the work of the Sub-Committee. Sue Lewis and Simon Gleeson were appointed on 22 September 2022.

9. Simon Gleeson is a partner at Clifford Chance in London. His experience includes advising governments, regulators and public bodies as well as banks, investment firms, fund managers and other financial institutions on a wide range of financial services regulatory issues. He was the lead legal advisor to the main UK banking and financial services industry bodies regarding Brexit.

10. Sue Lewis was Chair of the Financial Services Consumer Panel for two terms. She is currently a Trustee at the People’s Pension, StepChange debt charity, the FairBanking Foundation and Surviving Economic Abuse. Sue provides advice to international organisations on financial services consumer protection regulation, financial education and financial inclusion. She is a contributor to OECD research and policy development.

2 Continuing work

Further work arising from the October 2022 sift

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

11. The Sub-Committee’s previous quarterly reports summarise the work we have undertaken to scrutinise the PSR’s proposed approach to requiring banks to reimburse victims of Authorised Push Payment fraud.⁴ Work undertaken on this issue to date has included:

a) Consideration of the PSR’s initial proposal, PSR CP22/4, at our October Sub-Committee meeting;

b) Receiving oral evidence in December 2022 from PSR, Pay.UK (the industry body proposed in the consultation paper to undertake much of the work to design and deliver the mandatory reimbursement scheme), and the Financial Ombudsman Service (FOS);⁵

c) Further exchanges of correspondence with regulators and others, as set out in our previous quarterly Report.⁶

12. This work resulted in the publication of our Thirteenth Report, Scam reimbursement: pushing for a better solution.⁷ We concluded in that Report that Pay.UK’s “role in Authorised Push Payment fraud reimbursement proposed by the PSR has inherent conflicts of interest”.⁸ We were concerned that Pay.UK “lack[ed] effective regulatory tools to ensure the swift compliance of payment services providers”, and also lacked “the necessary independence and enforcement powers to be effective in enforcing compliance.”⁹

13. We recommended that the PSR “revise its plans to incorporate its use of directions to payment service providers under section 54 of the Financial Services (Banking Reform) Act 2013” as “this will give the regulator more control over the process and result in better outcomes for consumers.”¹⁰

Response to the Committee’s Thirteenth Report

Payment Services Regulator

14. The PSR responded to the Committee on 7 June 2023, timing its response to coincide with the publication of a full policy statement setting out its next steps towards implementing APP fraud reimbursement.¹¹ PSR agreed to use its Section 54 power to direct banks and payment services providers to reimburse victims of fraud, supplementing its initial proposal to issue direction only to Pay.UK. This is line with the Committee’s recommendation, and we welcome the change in the PSR’s approach. We expect to see a concerted effort from payment systems providers to protect and reimburse consumers who fall victim to this widespread crime. Issuing a direction of this kind significantly improves the safeguards available to consumers.

15. We noted that the PSR’s new scheme would remove any minimum threshold to qualify for reimbursement, which had initially been proposed at £100. Instead, an excess will apply, but the level at which this excess is set is yet to be determined.¹² We previously queried the existence of this threshold in correspondence.¹³ The full PSR policy statement also sets out proposed protections for customers deemed to be vulnerable, and time limits for Payment Service Providers to complete reimbursements.

Bank of England

16. There are multiple routes via which APP fraud can be committed. These include CHAPS payments, which are operated by the Bank of England.¹⁴ In January, the Sub-Committee wrote to the Bank of England to ask how it intended to implement the reimbursement of fraud on these payments.¹⁵ Following an interim response in February, we received an updated reply from the Bank of England on 8 June.¹⁶ In that response, the Bank of England confirmed that it would follow the approach proposed by the PSR. Further details specific to the context of CHAPS payments will be finalised in due course. We look forward to receiving more detail as soon as it is available. We acknowledge that the Bank continues to consider a possible upper limit on reimbursement claims. We will examine any proposals closely.

17. The Committee will continue to monitor and scrutinise the efficacy of the APP fraud reimbursement regime and the speed of its implementation.

Further work arising from the December 2022 sift

18. We took oral evidence on 22 February 2023 relating to FCA CP22/20: Sustainability Disclosure Requirements (SDR) and investment labels, which we first considered during our December 2022 sift. Following this evidence session, we wrote to the FCA requesting a new Cost Benefit Analysis (CBA) of the FCA’s proposals, and to ask questions on the FCA’s plans regarding enforcement and international convergence. This has since been published, alongside the FCA’s response.¹⁷

Further work arising from the March 2023 sift

19. The Committee wrote to the FCA and the Financial Services Compensation Scheme (FSCS) regarding the FSCS’ Management Expenses Levy Limit for 2023–24. We sought better to understand the steps taken by regulators in examining the FSCS’s proposals for any changes to the Levy Limit.¹⁸ We received a response from the FCA on 14 April, describing the steps taken to scrutinise the FSCS’s proposals. The FCA also reported that they had undertaken a Cost Benefit Analysis (CBA) for the consultation.¹⁹

20. The Committee wrote to the FCA on 21 March 2023 about CP23/1: Insurance guidance for the support of customers in financial difficulty. We asked for more information about the anticipated cost of the guidance to firms.²⁰ We received a response on 14 April. In that response to us, the FCA estimated that the cost of implementing the policy would be £327,000 across 4000 firms. The FCA noted that it had requested feedback about its CBA for this consultation.²¹ At our June sift, we agreed to write to the FCA with further questions about the basis of its CBA calculations.

3 Sift meetings and decisions

April 2023 sift

21. At its meeting on 26 April 2023, the sub-Committee considered the proposals set out in Table 1, and reached the following decisions:

Table 1

22. The Committee wrote to the PRA to ask whether, in the light of the collapse of Silicon Valley Bank UK (SVB UK), the PRA had considered any alterations in the consultation period for Papers CP4/23 and CP4/24. The PRA replied to the Committee on 18 May to confirm that consultation periods would not change, and that PRA analysis suggested that SVB UK would not have been within the scope of the Strong and Simple regulation framework.²² The PRA committed to writing to us when finalised policy statements were prepared. We look forward to receiving that correspondence in a timely manner.

June 2023 sift

23. At its meeting on 21 June 2023, the Sub-Committee considered the proposals set out in Table 2, and reached the following decisions:

Table 2

Multi-occupancy building insurance

24. The Sub-Committee decided to seek oral evidence on CP23/8, an FCA consultation relating to multi-occupancy building insurance.²³ The cost of insurance for multi-occupancy buildings has increased significantly since the Grenfell Tower tragedy in 2017. The consultation included proposals intended to support residents in multi-occupancy buildings, by requiring leaseholders to be given more information about the insurance they receive. The proposal would seek expressly to include leaseholders as ‘customers’ for the purposes of the FCA’s rules. This would require insurers and brokers to show how they have considered the interests of leaseholders when designing, pricing and distributing their products, as well as ensure that the product provides fair value to leaseholders as well as any other customers.

25. This proposal could affect a significant number of leaseholders across the UK. The Sub-Committee will seek oral evidence on this subject, to explore whether these proposals are sufficient and appropriate to correct the identified harm to leaseholders.

Further correspondence

26. The Committee noted that the Financial Services and Markets Bill makes provision regarding Cost Benefit Analysis (CBA) for FCA and PRA consultations.²⁴ While these analyses are themselves provided for in the Financial Services and Markets Act 2000, the Bill proposes to introduce Cost Benefit Analysis Panels “dedicated to supporting the development of the regulators’ CBA [ … ] The CBA Panels will also be able to review the regulators’ CBA methodology and processes by examining published CBAs”.²⁵ The Committee agreed to write to the FCA, alongside following up its previous correspondence about CP23/1, to ask how they intended to implement the requirement for Panels, and change their processes to make best use of the Panel once constituted.

27. This correspondence, and any responses received, will be published in due course.

Annex: Consultation Paper tracker, as of 26 June 2023

Formal minutes

Members present:

Harriett Baldwin, in the Chair

John Baron

Sir James Duddridge

Emma Hardy

Dame Angela Eagle

Andrea Leadsom

Anne Marie Morris

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 27 read and agreed to.

Annex agreed to.

Resolved, That the Report be the Eighteenth 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 4 July 2023 at 10.00 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; Treasury Committee, Fourteenth Report of Session 2022–23, The work of the Sub-Committee on Financial Services Regulations, HC 952-i

4 Treasury Committee, Fourteenth Report of Session 2022–23, The work of the Sub-Committee on Financial Services Regulations, HC 952-I, Chapter 2

5 Oral evidence taken on 13 December 2022, HC 939

6 Treasury Committee, Fourteenth Report of Session 2022–23, The work of the Sub-Committee on Financial Services Regulations, HC 952-I, Chapter 2

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

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

9 Treasury Committee, Thirteenth Report of Session 2022–23, Scam Reimbursement: pushing for a better solution, HC 939, paras 32 & 33

10 Treasury Committee, Thirteenth Report of Session 2022–23, Scam Reimbursement: pushing for a better solution, HC 939, para 45. See also Financial Services and Markets Bill, Clause 74 [HL Bill 146 [2022–23]]

11 Treasury Committee, Sixth Special Report of Session 2022–23, Scam reimbursement: pushing for a better solution, HC1500; Payment Systems Regulator, PS23/3: Fighting authorised push payment fraud: a new reimbursement requirement, 7 June 2023 [accessed 23 June 2023]

12 Payment Systems Regulator, Fighting authorised push payment fraud: a new reimbursement requirement, 7 June 2023, para 5.31

13 Correspondence from the Payment Systems Regulator to the Chair, dated 14 February 2023

14 Payment Systems Regulator, Fighting authorised push payment fraud: a new reimbursement requirement, 7 June 2023, para 2.20

15 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Chair to the Bank of England, relating to APP fraud, dated 25 January

16 Treasury Sub-Committee on Financial Services Regulations, Correspondence from the Bank of England to the Chair, dated 8 June 2023

17 Correspondence from the Chair to the FCA, dated 9 March 2023; Correspondence from the FCA to the Chair, dated 23 March 2023

18 Correspondence from the Chair to the Financial Conduct Authority relating to FCA CP23/3 and PRA CP1/23, dated 21 March 2023

19 Correspondence from the Financial Conduct Authority to the Chair related to FCA CP23/3, dated 14 April 2023

20 Correspondence from the Chair to the Financial Conduct Authority relating to CP 23/1, dated 21 March 2023

21 Correspondence from the Financial Conduct Authority to the Chair relating to CP23/1, dated 14 April 2023

22 Correspondence from the Prudential Regulation Authority to the Chair, dated 18 May 2023

23 Financial Conduct Authority, CP23/8: Multi-occupancy building insurance, 21 April 2023 [accessed 23 June 2023]

24 Financial Services and Markets Bill, Clause 41 [HL Bill 146 [2022–23]

25 Explanatory Notes to the Financial Services and Markets Bill [Bill 146 [2023–23] - EN], para 1000