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Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2002
7.32 p.m.
Lord McIntosh of Haringey rose to move, That the order laid before the House on 14th March be approved [23rd Report from the Joint Committee].
The noble Lord said: My Lords, the primary aim of the order is to give effect to the two European directives on electronic money, which were adopted in September 2000.
Before going into the detail of the directive, perhaps it would be helpful if I said a word about what electronic money is and what it is not. That will put in context how we have framed the directives and how they translate into UK law. Electronic money, or e-money as it is better known, is best thought of as an electronic substitute for coins and bank notes. It is stored on an electronic device such as a chip card or a computer memory. It is generally intended to make payments of a limited amount.
At the moment, e-money takes two main forms. First, there are plastic cards onto which e-money can be loaded. These usually take the form of cards with an integrated chip that memorises sums previously paid to the issuer and from which the necessary sums for small purchases are downloaded. Commercial trials of card-based e-money have been undertaken in the United Kingdom by Mondex International in Swindon and VisaCash in Leeds, but they have not yet led to a national scheme. Limited extensions have also been undertaken in self-contained communities such as universities.
The second main form of e-money is stored in an individual's computer or on a central server. These electronic tokens represent value, which can be used to buy goods and services; for example, over the Internet.
By contrast, debit cards, for example, are not e-money. Although a debit card allows its holder to make payments, the monetary value is not in any sense stored in an electronic device. The card contains only the data necessary to identify its holder and to link him to his bank account. At present, these data are little more than a bank number. But even when debit cards use chip and pin technology there is still no electronic money held on the card. So credit cards do not constitute e-money as they, by definition, do not represent pre-paid value. Company specific payment cards, such as the traditional BT phone card, are not covered as these are only accepted by the sole issuer.
To date the success of e-money in the United Kingdom has not been great. Nevertheless, firms are seeking to develop strong consumer propositions for e-money. E-money is best suited to those transactions where physical cash is awkward to use. Examples include use in parking meters and in vending machines that need exact change. Further success may come
from multi-application SMART cards which combine an e-purse with other applications, such as a debit or credit card, a transport season ticket or even SMART cards for digital television set top boxes.I return to the e-money directives. One of these—2000/28/EC—is largely technical and need not detain us. The meat is in the other directive—2000/46/EC. It introduces a special prudential supervisory regime for issuers of e-money. It creates a special new type of credit institution—an e-money institution—that will be authorised to issue e-money. Traditional credit institutions—notably banks—will also be able to issue e-money. Like banks, authorised e-money institutions will have what are known as passport rights, which will allow them to provide their services throughout the European Union.
The directive's regime for e-money institutions is based on the existing regulatory regime applicable to banks. In recognition of the more limited need for consumer protection and the fledgling nature of the industry, it is in many respects less complex and thus generally less onerous.
Set against this, the directive effectively limits e-money institutions only to issuing e-money. Banks, on the other hand, can undertake other activities as well, such as deposit taking. The regime for e-money institutions is also tailored to address some of the specific risks inherent in issuing e-money. For example, strict limits are placed on the investments an e-money institution can make with its outstanding e-money liabilities.
The Government take a positive and constructive view of the long-term potential of e-money. It provides a chance to create a modern and effective means of payment that will facilitate electronic commerce and novel ways of doing business.
In implementing the directive into UK law, we have struck a balance between two factors. On the one hand, there is the need to make provision for the financial integrity of e-money institutions and the protection of consumers. On the other, there is the need to ensure that the development of e-money schemes is not hampered by excessive regulation. Our general approach has been to implement the directive with a light touch. In that way regulation will not unduly burden existing e-money issuers. It will also encourage innovation and new entrants, both from within the banking sector and elsewhere.
The Treasury issued a consultation document last year seeking views on the proposed legislative measures for implementing the e-money directive. That approach received widespread support from industry and consumer groups.
Perhaps I may turn to some of the technical aspects of the order. The Government have chosen to implement the directive by making the issuing of e-money a regulated activity under the Financial Services and Markets Act 2000. That gives effect to the principal requirements of the directive. First, it ensures that persons not authorised to do so under the Act—other than those with a waiver—will be prohibited
from carrying on the business of issuing e-money. Secondly, it enables the Financial Services Authority to impose on e-money issuers the remaining requirements of the directive. The order defines e-money issuance in the same terms as the directive. It means that the FSA will now be responsible for offering firms guidance on the definition. I understand that it will shortly be publishing its guidance.With regard to waivers, the directive gives member states the option of permitting their competent authorities to waive the application of some or all of the directive's provisions in relation to certain "small" or "limited" e-money issuers. The Government believe that it is important for new entrants to be able to start up and grow without the burden of unnecessary regulation. We also believe that the risks to consumers posed by such a scheme are likely to be limited.
We have therefore provided fully for such waivers. They will exempt smaller schemes from the detailed requirements imposed on authorised e-money issuers. That will foster competition and innovation in the e-money industry and encourage its development.
Larger e-money issuers will, however, be required to seek authorisation from the Financial Services Authority. If successful with its application, these firms will need to meet the prudential and other requirements of the directive.
In accordance with the deadline set by the directive, the new regime will come into force on 27th April 2002. Firms already issuing e-money on that date will be granted a transitional exclusion. For the first six months after 27th April, they will be treated as not carrying on a regulated activity under the Financial Services and Markets Act 2000. The aim is for existing issuers to use the six-month period to apply for either authorisation or waiver. Meanwhile, issuers will be able to continue their e-money activities without interruption and without needing to comply with any of the requirements of the directive or of the Financial Services Authority's rules.
The order also makes further, miscellaneous amendments to the regulated activities order. These are of a technical and clarificatory nature. They are made following consultation with the Financial Services Authority and the industry.
Finally, I confirm, that in my view, the provisions of the order are compatible with the convention rights within the meaning of the Human Rights Act 1998. I commend the order to the House.
Moved, That the order laid before the House on 14th March be approved. [23rd Report from the Joint Committee].—(Lord McIntosh of Haringey.)
7.40 p.m.
Lord Lipsey rose to move, as an amendment to the Motion, at end insert "but this House regrets that Her Majesty's Government have postponed fulfilling their pledge to the House to introduce a similar order for the regulation of long-term care assurance."
The noble Lord said: My Lords, before I come to the substance of the matter, perhaps I may make three points. First, I have absolutely nothing against the
order, I wish only that another order had come first. Secondly, the noble Lord, Lord Joffe, asked me to apologise for the fact that he is unable to be here tonight. He, having with myself signed the minority report of the Royal Commission on Long-Term Care of the Elderly, would have liked to be here to support the amendment. Thirdly, what I shall say will be critical of the Government, but I wish to say that no blame attaches to my noble friend Lord McIntosh, nor to the Treasury Ministers who have dealt with the matter.I remind the House of the background. It was the recommendation of both the majority and minority reports of the Royal Commission that long-term care insurance should come under the regulation of the Financial Services Authority—one of the few things on which we agreed. That was strongly supported by consumer groups and the entire industry, which wants to be regulated in the sale of such products. It was resisted by only one group: Her Majesty's Treasury. I shall not go over its reasons now. When the Financial Services and Markets Act 2000 was before the House, amendments were tabled to ensure that it should be regulated. In their wisdom, the Government recognised that it would be futile to attempt to resist the amendments, as they had support in every quarter of your Lordships' House. They therefore gracefully stepped down. That was done by my noble friend, in his usual elegant and graceful language. He said:
- "We shall aim to include long-term care products in the regulated activities order, often referred to as the scope order, which will follow the passage of this Bill . . . I undertake that we will give the House a full report of our conclusions, with a clear timetable for future action, at the time when the order is debated. The Government intend to lay that order before Parliament as soon as is reasonably practicable. We are determined . . . that the stable door will not be left open for so long that there is a serious risk that the horse will bolt".—[Official Report, 18/4/2000; col. 581.]
In February 2001, nine months later, the regulated activities order appeared in this House. It did not mention long-term care insurance. I did not worry too much. After all, I had the word of my noble friend. On 16th March, my noble friend moved the order. Again, there was no mention of the promised timetable or of doing anything to implement it. I should have picked that up at the time, of course, but I did not worry, because I had the word of my noble friend. The months ticked by.
It was December 2000, eight months after the Bill, when the House had said that it wanted long-term care insurance covered, that the Treasury finally acted. It produced a consultation document, which was a little weak but better than nothing. It said that Ministers favoured regulation. It invited comment by March 2001, which we awaited.
Nothing happened, but I had the word of my noble friend that all was being done as soon as possible, so I did not worry too much. Again, months ticked by, and then—Eureka!—a letter arrived from Ruth Kelly, the Economic Secretary to the Treasury, dated 5th October, in which she said that she would shortly be
announcing that long-term care insurance was to be regulated by the FSA and that she hoped that regulation could be put in place as soon as possible.I had waited a long time for that day—Eureka day. The champagne was opened. I can remember the moment at which I took my fat file of correspondence on the matter, opened the wastepaper basket and threw it in. How nai ve. Again, months ticked by. In February, I received a letter from the Economic Secretary dated 31st January. Europe, it told me, had decided to move to a wider regulation of all insurance using intermediaries. It had therefore been decided that it would be right to delay providing for long-term care assurance until then—by 2004, the letter said, on present timing.
Given my experience of present timing over the matter, those words did not give me tremendous comfort. It may be that I shall be surprised by the measure in 2004, but I see the noble Lord, Lord Oakeshott, who is a gambling man, sitting opposite. Would he care to take even money on 2004—the noble Lord shakes his head—2005, 2006, what is the favourite in this market? Sometime? Never? Who knows?
That farce of dilatoriness and delay has important constitutional implications for how we do business in this House. We do business on the basis that when a Minister gives an assurance it will be seen through and delivered. Otherwise, many more amendments would be put to the vote and forced to decision from which there could be no reneging. I say in all seriousness and trying to avoid an excess of pomposity that if that convention goes, the way that we do business in this House and in another place will start to collapse. Heaven knows, it is hard enough ever to persuade the executive to accept the view of Parliament, but on occasion this Parliament presses its view. It is then incumbent on the executive to take that with utmost seriousness—not to try to delay, to destroy or to use "Yes, Minister" tactics to prevent the House getting its way but to bow the knee before the will of Parliament.
That is the high constitutional argument, but another argument weighs heavily with me. It concerns old people themselves. We did not press the amendment for the sheer pleasure of doing so. It was not some game that we were playing. The House felt that old people were in peril as a consequence of the lack of regulation of long-term care insurance. Since then, more than 2,000 policies have been sold. Those people lack the protection that regulation would have given them.
But it is more than that. The industry says—and I have no reason to disbelieve it—that it will not sell many such policies until they are regulated because old people will not have confidence in them. That is why the take-up has been quite small. So thousands more older people may lose all their assets, which they could have protected by taking out a long-term care insurance policy, as a result of the Government's culpable failure to put in place regulation.
It is a sorry tale. What is the way forward? The first way forward would be for the Government to ignore the decisions and views of the House again, as they did
last time, and proceed as they wish. One day, perhaps, we would see regulation, or perhaps we would not. That would not be acceptable to the House. Unless the Government give us the right assurances, we will find that future debates are more crowded and that there is much more press coverage. The conventions governing our business will be insisted on by the House. That is my view. The Government can try to prove me wrong if they choose.The second way forward—my clear preference—would be to proceed at once to bring in the order. The Government must have it ready by now. My goodness, it has been cooking away for more than two years. We could have limited consultation—the Financial Services Authority could do that if it were not tangled up in all the other regulation—and put the regulations in place as soon as possible. We should get on with it and get it done. That is my strong preference. However, there might be a fall-back. There are certain protections in place—for example, the code of the ABI for the products involved. There is, however, no protection against the wildcat independent financial adviser who sells the products to people who might not need them.
It would be worth while if those of us who have followed the subject and who have pressed it and the Government could explore interim protections—less good, I admit straightaway, than full regulation, but better than nothing—that would enable the House, in its infinite forgiveness, to forget what has been done. I hope, therefore, that my noble friend will say tonight that the Government are willing to open discussions and explore the options and that they will do their best, thinking creatively and positively, not entering the discussions with a view to blocking the proposals, about what must be done. I hope that my noble friend can agree to that. I have great trust in him, despite the things that have gone wrong. I shall be delighted to accept such an invitation, secure in the knowledge that I—and the House—have my noble friend's word. I beg to move.
Moved, as an amendment to the Motion, at end to insert "but this House regrets that Her Majesty's Government have postponed fulfilling their pledge to the House to introduce a similar order for the regulation of long-term care assurance."—(Lord Lipsey.)
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