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Lord Elton: My Lords, I should like to make a procedural point of considerable importance. In sitting down, the noble Baroness is inviting my noble friend

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to either withdraw or insist on his amendment. He is being asked to do so before we know what the answer of her right honourable friend will be when he comes back. Surely, the proper procedure is to adjourn this debate, continue with other business and return to it when we have the answer.

Baroness Royall of Blaisdon: My Lords, at the moment we are debating a Motion which I tabled. The noble Lord tabled an amendment. It is correct procedurally that we follow that procedure. I am trying to facilitate the will of the House in saying that we will come back later. Indeed, in my opening speech I said that I understand that my noble friend Lord Bach will also be in a position to offer concessions on some other matters as we progress this evening. In many ways, I am coming full circle and returning to the spot where I started. With that, I will sit down.

Baroness Butler-Sloss: Perhaps I may ask the Minister a rather practical question. If the noble Lord who moved the amendment wishes to divide the House, what on earth are we to do? We do not know the outcome. The situation is exactly what the noble Lord, Lord Elton, has said. Perhaps I may respectfully support him because I would wish to support the noble Lord, Lord Trefgarne, unless I am satisfied that only the four points mentioned are those that will go forward. If there are going to be more than four points, I would prefer to support the amendment from the noble Lord, Lord Trefgarne.

Baroness Royall of Blaisdon: My Lords, it would be improper for me to say exactly what position we will come to later. It is entirely reasonable that I have discussions with my right honourable friend; that is the proper thing to do. I have given the House my assurance that I will do my utmost to ensure that, when we come back later this evening, it will be to discuss those parts of the Bill on which there can be the broadest consensus around the House. I am afraid that the noble and learned Baroness will have to make her mind up on that basis.

Lord Mackay of Clashfern: My Lords, perhaps I may suggest, as a way of dealing with the procedural difficulty, that the noble Baroness could alter her Motion so that it excludes the Constitutional Reform and Governance Bill in the mean time. Later, at the beginning of the Bill's Committee stage, the Motion could be renewed as it applies to the Bill. That is my suggestion.

Baroness Royall of Blaisdon: My Lords, that is an interesting suggestion from the noble and learned Lord, for whom I have an enormous amount of time. But time is pressing. As the noble Lord, Lord Strathclyde, has said, we have hours left in this Parliament. We want parts of this Bill and we want other Bills, so we must proceed. I cannot accept the invitation.

The Earl of Onslow: My Lords, if the noble Baroness wants time, she should accept what my noble friend Lord Elton has said, and then we can get on with the rest of the business. She would come back to say either yea or nay, and we would proceed from there. If she

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says yes, an enormous amount of time will be saved. Surely that is what everyone thinks would be a sensible way forward.

Baroness Royall of Blaisdon: My Lords, I am not going to say yes. I have listened to the will of the House and I think that I have encapsulated the will of the majority of noble Lords. This is now for the noble Lord, Lord Trefgarne.

Lord Trefgarne: My Lords, I must say that I am in a very nasty dilemma. As several noble Lords have said, the noble Baroness is not able to give an assurance that the Government will now confine the Bill to the four elements that a number of noble Lords have said they would approve, and at a pinch, I would too. If the noble Baroness is prepared to say that she will recommend to her right honourable friends that we proceed only as proposed, I guess that I would be content. But she is not even prepared to say that. The noble Baroness is the Leader of your Lordships' House and a member of the Cabinet, but she is not prepared even to give her recommendation.

Baroness Royall of Blaisdon: I am sure that the noble Lord listened carefully to what I said earlier. I think that I have moved a huge amount. I have had no conversations with my right honourable friend the Secretary of State for Justice, and I think that I have gone as far as I can go.

Lord Trefgarne: I do not think I can accept that. I am extremely sorry.

Noble Lords: Oh!

Lord Strathclyde: My Lords, just before my noble friend makes his final decision, perhaps I may suggest that if he withdraws his amendment and we agree the Motion moved by the Leader of the House, we will continue with the business. But when the Motion is called to go into Committee on the constitutional Bill, if at that stage my noble friend is not satisfied, he can call his vote.

Lord Trefgarne: My Lords, I am obliged to my noble friend for that intervention. Let me summarise the position. There are four aspects of the Bill which are likely to attract the support of most noble Lords. I am a bit stretched, but I, too, will accept the consensus if that is the view of your Lordships' House.

I will say now that I hope and expect the noble Baroness to come back in an hour or so, having persuaded her right honourable friend to that course, and then we shall be content. But if, as my noble friend anticipates, we get to the Committee stage of this Bill later tonight and such an assurance is not forthcoming from the noble Baroness, I am afraid that your Lordships are going to be here all night. On that basis, I beg leave to withdraw the amendment.

Amendment to the Motion withdrawn.

Motion agreed.

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Financial Services Bill

Bill Main Page
Copy of the Bill
Explanatory Notes
Copy of the Report

Committee (3rd Day)

5.29 pm

Clause 5 agreed.

Clause 6 : Enhancing public understanding of financial matters etc

Amendment 38

Moved by Lord Davies of Oldham

38: Clause 6, page 4, line 13, leave out "2(2)" and insert "2 (the FSA's general duties)-

(a) in subsection (2)"

Lord Davies of Oldham: My Lords, it will be appreciated that this Bill has been the subject of considerable discussion and the government amendments reflect the discussions that we have been able to enjoy with the opposition. These issues have also been the subject of considerable consideration elsewhere.

Amendments 38 and 39 require the FSA, when discharging its general functions, to have regard to the desirability of enhancing public knowledge and understanding of financial matters, including the financial system. The amendments place a new obligation on the FSA that complements the education body's remit to lead the financial education agenda. This outcome-focused provision also complements the more operational requirement in Part 1 of the new Schedule 1A to the FSMA to ensure that the new body is capable of exercising its consumer financial education function. It also provides a clearer framework for collaboration between the body and the FSA.

Amendment 40 requires the FSA, when discharging its consumer protection regulation objective, to have regard to information provided by the education body to the FSA as part of the consumer financial education function. This expands on the FSA's obligations to protect consumers, set out in Section 5(2) of the FSMA, whereby it must already consider the differing degrees of risk to consumers of various kinds of financial transaction, and consumers' information and advice needs. Along with Amendments 36 to 39, this will further strengthen the framework for collaboration between the FSA and the new body.

Amendment 59 will ensure an independent board that is made up of suitably qualified and informed individuals, while avoiding any unintended constraints on the board's composition. It allows sufficient flexibility for a variety of different people to be appointed to the board.

The government amendments include authorised persons, those who represent the interests of consumers and those with knowledge of education. Amendment 68A and 68B require that the consumer education body must specify in the annual plan how it will measure the success of its objectives, including both annual and long-term objectives. This is a response to concerns raised in debate and in discussions with stakeholders.

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Amendments 75 to 77 and 80 provide for fees to be collected by the FSA from firms authorised by the FSA under the Financial Services and Markets Act 2000. However, payment service providers are regulated by the FSA under the Payment Services Regulations 2009. As such, the Bill does not give the FSA the power to levy these firms to contribute towards the costs of the consumer education body. These are therefore technical amendments that are designed to correct this minor lacuna in the Bill. I beg to move.

5.30 pm

Baroness Noakes: My Lords, we have said from the outset that we support the work that is planned for the consumer financial education body. The FSA's own research has shown what a shockingly low level of financial capability exists in the UK, and the sooner that a proper co-ordinated start is made on that, the better. On that basis, we are content for Clause 6 and Schedule 1 to remain in the Bill, as amended by the Government's amendments. My noble friend Lord Eccles had given notice of his intention to oppose Clause 6 and Schedule 1. I confirm that he will not be opposing stand part today.

Our support for these parts of the Bill does not mean that we regard the way in which the body is being created as perfect and there is scope for scepticism as to whether the money guidance project, which is waiting to be rolled out by the new body, will raise standards of financial capability. I am sure that it will do some good, but whether financial capability will be raised is a moot point.

The Minister will know that my noble friends and I had together tabled more than 40 amendments to Clause 6 and Schedule 1 and we regret that we will be unable to debate our concerns today. Some of our concerns are met, in part, by the Minister's amendments, but others will remain undebated. I hope that if my party is elected in a few weeks' time we will have an opportunity to revisit this part of the Bill when we bring forward legislation to implement our vision of the future of the FSA.

Amendments 38 and 39 are, in effect, a government U-turn, and Amendment 40 builds on the rather touching idea in Clause 6 that this new body should be educating the FSA about the benefits and risks of financial dealing. The amendments do no harm, a category into which I would also place Amendments 75, 76, 77 and 80. Amendments 68A and 68B respond to concerns that lay behind one of our amendments-that the planning cycle of the new body was too short term and insufficiently focused on measuring success or failure. We welcome the Government's amendments.

That leaves only government Amendment 59, which responds in part to amendments which both I and my noble friend Lord Hodgson had tabled concerning the make-up of the board of the new body. I regard Amendment 59 as vague. It does not seem to move the argument much forward and could be regarded as positively dangerous because it could sanction a board comprised solely of academics who specialise in consumer financial education and awareness. It also provides no obvious place for someone who does not have that background but could provide a sense of challenge

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from a diverse perspective. If we had reached government Amendment 59 in Committee in the ordinary course, I had planned to oppose it for the reasons I have just given, although I would have given them at greater length. However, we are not in the ordinary course and I shall let it pass.

Lord Oakeshott of Seagrove Bay: My Lords, I rise from the substitutes' bench to lead for the Liberal Democrats on the remaining stages of this Bill because our star striker on it, my noble friend Lord Newby, is abroad. I declare an interest as a pension fund investment manager for the past 34 years and, specifically, as a director of an investment management firm which is regulated by the FSA.

We support the amendments and the provisions in the Bill. The noble Baroness referred to the low standards of financial education-I would say financial illiteracy-as a serious problem in this country. Heaven knows, more education is needed. Automatic enrolment into NEST is rapidly coming down the track and there is a considerable danger that a serious accident is waiting to happen. Given the detailed provisions in the Bill, we need to get across to people how serious the problem is, particularly if you are saving for a pension and expecting returns of, perhaps, 6 or 8 per cent a year. There will now be a 2 per cent skim-off from the front of all contributions in NEST while, at the same time, many people will be paying debt interest rates of 20 or 25 per cent on their credit card bills. Getting across that message and that integrated advice will be exceptionally important.

If the Conservatives win the election-indeed, this is already causing some problems-staff of the FSA who operate in these and other areas could be left in the kind of limbo of not knowing the plans for the future. However, obviously that part of the Bill is no longer there and so, with those points, I support the amendments.

Lord Hodgson of Astley Abbotts: I shall say a few words about Clause 6 stand part and Schedule 1 stand part. Even at this late stage, I think that the Government have got wrong the shape of what they propose. I hope that I can convince them that there is a reason for reassessing their approach to this important topic. Before I do so, I declare an interest: I am a non-executive of a company which provides compliance training and fund management services to independent financial advisers. The Committee should be aware that it is directly in the area which we are discussing today. The company is regulated by the FSA and I am an authorised person.

Clause 6 is headed:

"Enhancing public understanding of financial matters etc".

With that, no one could disagree; it must be a very good objective. However, once one moves from the strategy, as expressed in that strap line, to the means by which it should be carried out, one becomes very much more doubtful.

As my noble friend Lady Noakes said, I, she and others on this side of the Chamber tabled a number of specific amendments to address these points which we have been unable to discuss. However, I should like the Government to take on board three or four major points in relation to their approach.

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The first is my long-standing concerning about the title, "consumer financial education council". "Consumer" conveys the wrong basis for the terms of trade in this important area. The Minister's people will no doubt look up the definition of "customer" and "consumer" in the dictionary and say that they are very similar, and that it is a distinction without a difference-I can almost see the speaking note from here. But-and it is a very big "but"-there is a difference in the real world between customers and consumers. A consumer has a very short, transitory relationship-you consume toothpaste or soft drinks, for example. A customer has, or expects to have, a longer-lasting relationship, based on trust, professional standards and delivery of a service over time. You are not a consumer of the services of a law firm; you are a customer. Paragraph 10 of the Explanatory Notes to the Bill emphasises the need for and importance of a long-term relationship. To make this shift, to effect a subtle but important change of public attitudes towards this sector of the market, we need to change the terms of trade.

The Minister will be aware of the enormous amount of work that the FSA has done on the Retail Distribution Review, or RDR. That very worthwhile piece of work, which has been a long time in gestation, will be endangered, even have a stake driven through its heart, by the proposals before us. At its heart, RDR proposes the creation of a new profession of financial advisers, with levels of competence and ability demonstrated by the passing of examinations. The scope will range from simple advice focusing on basic needs, perhaps given by a single person, to complex, multidisciplinary advice, available only from a firm employing different specialists. Just as one does not expect a single solicitor to be available to advise on property, contracts, estates and wills, and litigation, so one should not expect a single person to be able to advise on inheritance tax planning, pensions, mortgage protection and so on. These firms will have customers and long-lasting relationships. They cannot and should not properly be described as consumers.

There is the other side to the coin: we need to find ways to attract new, younger blood to the financial advisory profession. It is well known that the average age of IFAs is the mid-50s. It is expected that between 20 per cent and 30 per cent of them will be unable or will choose not to achieve QCA level 4 by 2012, when, under RDR, it will become obligatory. We will therefore have a shortage of advisers at a time when saving will never have been so important for the reasons that the noble Lord, Lord Oakeshott, mentioned.

Why has this been so? It has not been seen as an attractive profession for a younger person to work in. Using and continuing with the consumer-type terminology does not help to create that profession. We need to assist in the transformation of this IFA industry, creating a new profession that attracts competent, dedicated people to work in it, with proper career prospects, so giving confidence to investors and savers so they will be well looked after. That is my first problem with what the Government propose.

My second problem is that the tasks of the new body are wrongly defined. New Section 6A(2) in Clause 2 says:

"The consumer financial education function includes, in particular ... promoting awareness of the benefits of financial planning ...

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promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services ... promoting awareness of the benefits and risks associated with different kinds of financial dealing".

All that is perfectly and properly worth while, but to use an educational comparator, this is an A-level syllabus. As my noble friend Lady Noakes made clear, we need to start at least in parallel at a much more basic approach, which is what we were going to try to encourage the Government to do in our amendments that we never got to discuss in Committee, because it was cut short. We need to discuss the management of debt, the control of personal spending, living within an income and protection against disaster; all those things need to form part of the council's remit. At the moment, it is starting at far too high a level and is not going to tackle the really important part of the market.

A couple of years ago I talked to the chief executive of a major life insurance company who said that at the height of the boom, the persistence of a pension scheme-that is, the time that it lasted, usually a pension scheme and associated life insurance-was four years. People were putting money into a pension and then deciding what they should do, taking it out and putting it into a holiday, extending their house, moving or whatever else. Those are the sorts of issues that we should be tackling, because nobody can possibly have a satisfactory investment in a pension if they think that they are going to roll it out after four years. It is a long-term investment. Nowhere in the terms of reference of this body do I see sufficient attention to the basics. I see lots of stuff about much more sophisticated arrangements but nothing about the real hard core of basic financial knowledge and education for people. Instead, we have castles in the air.

On the body itself in Schedule 1, I recognise that the Government have tabled some amendments, for which I am grateful. However, despite what I see-and maybe the Minister can reassure me on this-the FSA continues to have apparently untrammelled powers of appointment to the consumer financial education body, with the exception of the chair or chief executive, which requires Treasury approval. While Amendment 59, referred to by my noble friend, has some relevance, there is nothing there about geography. This could be a very M25-centric body, unless we had people drawn from the regions. There is nothing about the type of experience that people should have and nothing to ensure that this is a sufficiently broad-based body, which will command and give consumer confidence and confidence within the industry.

If the Government read through the Financial Services and Markets Act and looked at Clause 9 on the practitioner panel, they would see it lay down the sorts of people whom the authority must appoint-in this case, the FSA, including,

There is a much clearer way of ensuring that the body is able to represent and make an effective contribution. It goes further in Clause 10, on the consumer panel, which requires that:

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