If we are going to restore the integrity of the financial services industry, we as a Parliament must be prepared to show that we are prepared to speak up for the vulnerable. Those of us whose careers have taken us into the other place have had to deal with constituency cases. Quite frankly, a number of times I have felt like sending for the police when I have had constituents in with instruments that they have been sold, which, in many cases, have taken their entire savings away from them. You get not just the City spivs who you see on television programmes but people who live in a community selling wholly unsuitable products.
I suspect that the Minister will say that this legislation is not necessary. I urge him to reconsider that. If we do not put the consumer back again at the heart of the financial services industry, we will lose the competitive advantage that I hope we still retain despite the events of the past few years. We have to overstate to convince people that their interests are at the heart of what this country stands for in terms of financial services regulation.
Lord Peston: I support my noble friends, particularly my noble friend Lady Liddell. This takes us back to our earlier remarks today on the need for a professional body for the financial intermediary. I was very disappointed at the way in which the Government did not seem to recognise that as a matter of great concern. As I understand it, doctors have a professional body in the first place and, secondly, they have a code of conduct. Therefore, this sort of thing is not necessary for them because they know that that is how they have to behave. This is true of a number of other professions.
However, one group of people who claim to be professional—the financial intermediaries—have nothing like this at all. I think I am right in saying that there is no professional body whatever. The Government seem perfectly happy with that. They do not seem to see that they should at least encourage them to set up a professional body with a code of conduct, et cetera.
My noble friend Lady Liddell puts her finger on it when she says that we really should not be discussing this issue and that it should be taken for granted that the sort of things referred to by my noble friend Lord McFall could not happen. In a decent society, that should be the case. However, it is not the case. One of the great things about this House, until we are all thrown out, is that your Lordships accept their responsibilities, although our successors may not. It is important to draw attention to what responsibilities should exist in society. I believe that the Government should respond positively to my noble friend’s amendment.
Lord Stevenson of Balmacara: My Lords, I support the amendment in the name of my noble friend Lord McFall. I declare an interest as chair of the Consumer Credit Counselling Service, the country’s leading debt advice and debt management charity. I want to focus in particular on people who struggle with debt, often because they have got into arrears with their credit cards or personal loans and other consumer credit products, but also because of mortgage arrears, rent arrears and, increasingly, fuel and utility debts and council tax.
CCCS has helped more than 1.5 million people in the past three years and about half of them told us that unemployment or reduced income were the main reasons for their debt problems. People also say that life events such as illness or separation can quickly overwhelm family finances and cause or contribute to mounting debt. What they find is that debt is rarely a problem in isolation. There are nearly always other factors that need to be addressed, including the link between problem debt and depression. Nearly half of CCCS clients said they had been worrying about their debts for a year or more before seeking help from a debt advice provider. Around a third of people said that their debt problems had weakened their relationships or led to a break-up. Nearly half said that debt had shattered their self-confidence to support themselves and their families.
The pre-crash boom in consumer credit, which peaked in about 2007, also remains a key part of the UK debt narrative. Even after several years of near zero lending, the total outstanding secured and unsecured debt is still some 91% higher than it was 10 years ago—so it is a pretty bad picture. Research for CCCS by the Financial Inclusion Centre concluded that some 6.2 million households are currently either already in financial difficulty or at risk of getting there, and it is going to get worse.
The IFS estimates that real median household incomes will fall by 7.1% between 2009-10 and 2013-14 as a result of low growth and fiscal tightening, the largest decline since the 1974-77 fall of 7.5%. Unemployment remains at a stubbornly high 8.3%, or 2.65 million people, although it has just reduced. Youth unemployment sits at 22%—more than one in five young workers is without a job. This is particularly worrying as we know that time spent not in employment, education or training as a young adult can have a scarring effect as well as reducing earnings.
At the same time, we are experiencing an extended period where households are facing rising costs for essential goods and services. Food, fuel and transport
costs are rising sharply and we will sooner or later face a rise in interest rates, which are unnaturally low at present. Figures from the Financial Inclusion Centre show that if living costs rise by more than £50 per week, it would double the percentage of households—which is currently 30%—who have no spare cash at the end of the month.
There is surely sufficient evidence in what I have said that the idea that consumers should be required to take full responsibility for their decisions does not accord with what happens in the real world. My noble friend Lord McFall made this point very eloquently, and we strongly support his idea that in considering what degree of consumer protection may be appropriate, the FCA must have regard to the differing ability, disability and vulnerability of different consumers.
However, it goes further than that. The FCA has also got to take into account what the CCCS and FIC research tells us about the way people’s history and the impact of family issues, illness and relationships interact with their credit arrangements. Families are being squeezed hard at both ends, with incomes and expenditure under pressure. The Bill ought to be amended to reflect less of the theory of caveat emptor and be more reflective of what is happening on the ground.
Lord Sassoon: My Lords, the debate on this group of amendments has been very interesting. However, it has some characteristics of straying into Second Reading territory because it has gone much wider, albeit over very important areas, into questions of broad mis-selling standards in the industry, which we have discussed already this afternoon. Therefore, I will not go over all the points that have been made but stick to the issues that are the focus of the specific amendment, subject only to one general point about the important questions raised by the noble Lord, Lord McFall of Alcluith, on proposed new Section 1C—on the consumer protection objective, which clearly goes to the heart of this—and his observations and questions on proposed new Section 1C(2)(e), which concerns the general principle of care.
One issue around the drafting that we should bear in mind is that the FCA will be responsible for the protection of retail consumers, but will also have a responsibility for wholesale markets, professional markets and counterparties. The reason behind the drafting of proposed new Section 1C(2)(e) is to make sure that it encompasses both the very strong duty of care that is due to individual consumers, on the one hand, and the fact that between professional counterparties the nature of the duty of care is very different. Indeed, in the terms of this particular principle, there may be no duty of care under this provision if the market is purely professional—it is very different from a consumer product market. It is important to understand that background to the discussion. However, these amendments are very much concerned with protection of the consumer.
Baroness Liddell of Coatdyke: There is some confusion in my mind about what the noble Lord is saying. He is talking about the responsibility and the environment of risk in wholesale markets as against retail markets. Even in wholesale markets, there is now a need for a duty of care. The noble Lord was managing director
of financial regulation at the Treasury, so he will be aware that from the time of Barings onwards there has been an issue about the duty of care in the wholesale market, too. I am not saying that it should be equated across the board with the duty of care to consumers, but no one who has watched developments over the past few years can take a laissez-faire attitude to what is happening in wholesale markets.
Lord Sassoon: I am not suggesting for one moment that there should be a laissez-faire attitude. I am merely pointing out that a very different set of parameters has to be used by the FSA, and will have to be used by the FCA, when dealing with different parts of the financial services market. To those who argued earlier that we should not lose caveat emptor, I point out that in professional-to-professional markets, of course there has to be a high degree of integrity. Recently we saw exactly what appears to have been going on in what are fundamentally professional markets. However, that is very different from the duty of care owed in the case that we are talking about, which is of selling products to vulnerable, disabled consumers. Wholly different considerations apply from those that apply in professional markets. I point that out because the noble Lord, Lord McFall of Alcluith, got into this broader question, and as background to the question that we need to come on to, which is whether it is appropriate to include amendments to highlight important issues about disability, ability and vulnerability that address consumer product markets.
Lord Davies of Stamford: I hope that the Minister will think again about this before Report, because he has got it profoundly wrong. There is a duty of care for all clients. Of course, it has different consequences according to the nature of the client and according to their sophistication, capital resources and ability to absorb risk. When Goldman Sachs placed collateralised debt obligations—securitised packages of mortgage loans—with professional clients, they knew that the products were junk, and internal e-mails referred to them as such. They were breaching a duty of care; there is no doubt at all about that. The courts will be looking at this in connection with LIBOR and are very likely to decide that if it were the case that even professional clients were working on the basis of a falsified LIBOR rate, there was a breach of fiduciary responsibility and duty of care. Duty of care is an enormously important term of art. The Minister, this afternoon, is trying to weaken and dilute it. That is an extremely dangerous line to go down.
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Lord Sassoon: No, my Lords, I am trying to use duty of care in the precise way in which it is used in FiSMA and the regulations that go with it. There are, of course, all sorts of other considerations that apply, whether it is in the LIBOR market or other markets. However, I am trying to use the term precisely as it relates to this legislation and the regulations under it. If we want to redefine duty of care or anything else as something that it is not, now is not the time to do it. This has been a wide-ranging debate. However, I would like to focus on the amendments themselves, which
highlight important issues with much more focus than some elements of the discussion we have just had. The issues concern disability, ability and vulnerability. I fully share the views of the noble Lord, Lord McFall of Alcluith, that the ability of consumers to engage in financial services can be affected by their age, disability or other personal circumstances. These are points that have been made by a number of noble Lords in this debate, albeit that some other points went rather wider.
The first thing to be clear about is that I disagree with the noble Baroness, Lady Liddell of Coatdyke. It would be nice to be in a world in which these issues did not have to be referred to in legislation at all, but that is not the position I take. I believe that they should be reflected in legislation, and indeed they already are in a number of ways. For example, both the FSA and the Money Advice Service, which we have been talking about, have duties under the Equality Act 2010. The FCA and the PRA will be subject to the same requirements, so the Equality Act also bites on them. Also, under the public sector equality duty set out in the Equality Act, both the FCA and the PRA will be required to assess their rules and processes for their impact on protected groups, and take mitigating action where appropriate. In addition, equality law applies to financial services providers so that firms are required to make “reasonable adjustments” to their services for consumers with a disability under the Equality Act, depending on the nature of the product, the barrier and the size of the business. So there is indeed a body of law that goes very much to the points which the noble Lord, Lord McFall, makes.
Then there is the question of monitoring compliance by the industry with equality law. This is not a job for the FCA or the PRA. It is for the Equality and Human Rights Commission, as the regulator responsible, to enforce the law, and it indeed has the powers to do that. These powers include helping individuals with their legal cases and taking legal action against organisations that appear to have broken the law.
Amendment 136 specifically concerns the regulatory principle concerning consumer responsibility to which the PRA and FCA must have regard in discharging their general functions; and through Amendment 105 the noble Lord wishes to ensure that the FCA, in determining what an appropriate degree of consumer protection is, has regard to the way in which certain consumers may need extra help and protection. These issues are reflected in the FCA’s proposed principles-based approach to regulation, which is designed to ensure that firms adapt their approach depending on the needs of the customer. Instead of having myriad detailed rules and requirements that focus on different degrees of vulnerability, disability or other personal circumstances, requirements on firms will focus clearly and unequivocally on the overarching principle that firms need to take account of their customers’ needs and treat them fairly.
This builds on the FSA’s current approach. For example, principle 7 of the FSA’s Principles for Business states:
“A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading”.
In setting penalties for the failings of firms, one key aspect the FSA considers is,
“whether the breach had an effect on particularly vulnerable people, whether intentionally or otherwise”.
There are examples of where the FSA has taken very significant action. I will cite only one, but I am sure the noble Lord is familiar with it. Late in 2011, the FSA fined NHFA—a subsidiary of HSBC—£10.5 million for mis-selling products to elderly customers. The firm sold asset-backed investment products to elderly people wishing to fund their care home costs, but in fact many of them were not expected to live beyond the period for which it was recommended the products were held. I could also cite cases in relation to the Bank of Scotland and Swift 1st Ltd, so the FSA has been on the case.
The principle that a customer with greater needs should be better protected or offered more support and assistance is clearly enshrined in the regime, but it would not be appropriate to take a more detailed approach, for two reasons. First, we would not want the FCA to cut across or duplicate the efforts of the Equality and Human Rights Commission in considering what circumstances might need special care, and how they should be accommodated. The current approach strikes the right balance of setting a high-level framework with requirements directly imposed on firms by the Equality Act and, on the other hand, with discretion for the FCA to impose more detailed requirements as necessary to ensure appropriate consumer protection.
Secondly, I do not think it is right to list all these matters here. Again, it is potentially duplicative, but more importantly it also risks being incomplete. For example, we might legitimately add age, gender or geographical location—issues which I believe have been raised in previous debates on this Bill—to the list already proposed in the amendment, but where would we stop? I believe there are sufficient powers there. We will come on in due course to the new product intervention powers, which are important in this context compared with what the FSA has at present. Although we will no doubt come to them in detail in due course, the product intervention powers in new Sections 137C and 138M, which mean that in extreme cases a product could be banned with immediate effect, are also additional important safeguards to back up the general principles and approach which I have outlined.
I hope that I have made it clear that the Government take these issues extremely seriously. Unfortunately we cannot and should not rely on people doing the right things, which is why we have the various provisions in the equality legislation as well as the provisions for the FCA—provisions that will be tougher on intervention powers than the powers that the FSA currently has. I therefore invite the noble Lord to withdraw his amendment.
Lord McFall of Alcluith: My Lords, in withdrawing my amendment I express my disappointment with the Minister’s response. Just to illustrate that individuals in this House are up to date with electronic technology, I can say that I took advantage of looking up the meaning of “objective” in Dictionary.com, because that is in bold at the top of the paragraph we are talking about. “Objective” means,
“something that one’s efforts or actions are intended to attain or accomplish”.
In other words, it is the purpose, the goal or the target of what we are to achieve. I submit that there is nothing more comprehensive than that. Therefore, we do not stray away from the subject; this is very germane to the subject. There is still disappointment in the FCA being expected to attend something rather than having a duty to attend. Tonight, we expect to get to a particular clause before we adjourn at 10 o’clock, but the consequence of not getting that far is that we take it on the next day. In other words, the consequences are not very great. There is a difference between that and a duty.
I submit that the Minister, for whom I have great respect, has muddled thinking on this. I wish that he would look at this again so that we can come back on Report to get clarity. Besides me, quite a number of people cannot understand what the Minister is trying to achieve here. I beg leave to withdraw the amendment.
Amendments 105A and 106 not moved.
106ZA: Clause 5, page 16, line 43, at end insert—
“( ) The general principle that consumers should have to give informed consent to the use of their personal data by a regulated financial institution, and in particular to the transfer of such data into or out of such an institution when that institution is part of a group of companies whether that group is a qualifying parent undertaking or not, and that it should be possible for such informed consent to be easily and effectively withdrawn.”
Lord Lucas: My Lords, the amendment concerns a subject raised by the noble Lord, Lord Whitty, at Second Reading. With his consent, I raise the matter now in his absence.
The issue of consent to the use of information on the internet is greatly confused at the moment. We have the principle of caveat emptor, as far as possible; we have a set of data protection regulations which are of variable application; and we have a daft system doing the rounds at the moment under which every website pops up with the message, “Can we use cookies?”, to which you answer, “Yes”, because the website will not function without that. That is a complete waste of time which has been foisted on us by Europe.
The question raised by the noble Lord, Lord Whitty, is interesting and I shall be interested to see where the Government find themselves. When you have a regulated institution with financial data on people, under what circumstances is it allowed to share those data with other bits of the same company which are not regulated? This may apply to Tesco with all the data which it has on Clubcard. Is the retail side of Tesco allowed to look at what people are doing in their bank accounts and to understand what they should be marketing to them? Vice versa, is the banking side of Tesco allowed to look at all the Clubcard data and say, “Hang on, this guy looks as though he is going bust because he is starting to buy cheap orange juice, so we really ought
not to be offering him the degree of credit that we are”. If we are to allow such sharing, what degree of information should be offered to consumers about what is happening? There is a standard practice on the internet—I rather suspect that we have all done it—where we are presented with a little form saying, “Have you read the agreement? Tick ‘yes’”, and the agreement is 154 pages long. As it is not really clear where the changes are from the previous one you signed, you tick “Yes” because you want to use the thing. You sort of trust the people you are dealing with.
Are we in the territory where the consent to share information will be hidden away in that kind of automatically signed agreement on the web, or are we in the territory where things would have to be made clear in the preamble to the consent form that this sort of sharing was being permitted and that no disadvantage would be incurred by the customer if they refused to share? I find this a puzzling area and I shall be very interested to know what the Government intend that the FCA should do. I beg to move.
Baroness Hayter of Kentish Town: My Lords, the British banking market is changing, thanks, partly, to the ongoing regulatory reforms, as new competitors enter the market. Clearly, that new competition is very much to be welcomed. Consumers need greater choice both for themselves and to drive up standards. However, we should be aware, as the noble Lord, Lord Lucas, has spelt out, that potentially some of the new entrants to the financial sector happen to possess a large amount of data on their customers from the non-banking activities. Therefore, it will be important for safeguards to be put in place to prevent any abuse of that information.
Clearly, supermarket banks own some of the largest consumer databases in the world, with item-level purchase data on each of the millions of members of their loyalty card schemes. Should that information be used by the banking arms of those conglomerates, it would clearly raise concerns for consumers about their personal privacy and about the potential for misuse. The concerns are fairly obvious. What about invasion of privacy? A consumer’s lender will know everything about what they had purchased and when. For example, imagine that a bank learnt from the supermarket side when a consumer started to buy cheaper food, they would know exactly when payday loans might be welcome. Similarly there is a possibility of the use of that ordinary supermarket data as a credit rating mechanism.
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Loyalty scheme operators know an enormous amount about all of us. I understand that Clive Humby of dunnhumby, the Tesco subsidiary which manages Clubcard, has boasted that, of the customers who tend to buy only convenience meals, Tesco knows exactly which ones are shift workers by the time of day when they purchase those convenience meals. I assume that means Members of your Lordships’ House who shop at 10 o’clock at night. The company also tends to know who the students are by the sort of things that they buy. Recently, in the States, there was an example—not in the banking area—of a supermarket having seen that a woman was buying vitamin supplements, lotion and hand sanitisers, and working out that she
was pregnant and then sending her some information about that before she had got around to telling her parents. That is different from the banking side, but now that it will be easier for some of these non-financial firms to purchase banks there are worries about the spread of information and whether it could leak across.
Behind the amendment moved by the noble Lord, Lord Lucas, is the desire for some assurances that guarantees will be put in place to ensure that there is a firewall around any loyalty club databases to prevent a spreading across to the offer of financial services. My noble friend Lord Whitty raised the same subject during the Second Reading debate. We want to encourage new entrants into the banking world to give consumers a better deal, but we need to ensure that there are protections and safeguards to prevent the abuse of personal data and that there is perhaps some oversight mechanism.
I assume that the second amendment in this group is not being discussed but perhaps the Minister will nevertheless respond to it.
Lord Sassoon: My Lords, I shall respond to the amendment that has been moved but I shall not respond to the amendment that has been not been addressed. Amendment 106ZA seeks to add to the list of matters to which the FCA must have regard in advancing its consumer protection objective. The new “have regard” proposed by my noble friend focuses on data protection, as he has explained, and specifically would require the FCA to consider the issue of consumers having to give informed consent in order for their data to be shared, in particular within a group of companies which includes a non-financial services institution.
Of course, I agree that consumers should have full knowledge about what is being done with their data at all times and have to consent to any sharing of them. I will do my best to reassure the Committee, as I think it is fairly clear, that there is already legislative provision in place to deliver what my noble friend wants to achieve and that this applies whether or not we are talking about different entities—because it is essentially a legal entity test—within a banking group or different entities within a supermarket group. The bank within a supermarket group is bound to be in a different legal entity from the supermarket operation itself. The same considerations apply whether within a banking group, within other financial services groups or within a supermarket group.
The ability of a subsidiary to share personal information about its customers, either with the parent company or with another member of the group, is already regulated by the Information Commissioner under the Data Protection Act 1998. It is legislation that applies to a financial services firm in exactly the same way as it applies to a supermarket or any other data controllers. If a financial services firm has breached a customer’s rights under the Data Protection Act—for example, if it has used the customer’s personal information unfairly, for a reason that is not the one for which it was collected, or without proper security—then the right course of action is for the customer to complain to the firm and then to the Information Commissioner. The Information Commissioner has the powers to force compliance with the law.
The FCA will not, therefore, be the first line of defence in the area of data protection. It is important that we do not blur the lines of responsibility between a financial services regulator and the Information Commissioner, who, as we have seen through numbers of cases, whether in financial services or in other areas, is a regulator with teeth. The case in 2007 of Nationwide is an example of the Information Commissioner taking aggressive action. In support of that, the FSA will take action where appropriate. The Information Commissioner is the first line of defence, but if a financial services firm were to do something reckless, such as losing a laptop with consumer data on it, then it will be fined, as Nationwide was fined £1 million in 2007.
We have the Information Commissioner as the first line of protection to make sure that information cannot leak from one entity to another within the group without the informed consent of the consumer and that the data within the entity are properly used in the way I have suggested. However, as a second line of defence, in areas such as the one that I have described, of the loss of a laptop, the FSA—and in future the FCA—will have important supporting powers. Therefore, I would suggest that this “have regard” is one that is not necessary or appropriate and might raise false expectations about the responsibility of the FCA in an area where there is a regulator with proven ability to come down hard on those institutions that abuse consumer data. I ask my noble friend to withdraw his amendment.
Lord Lucas: My Lords, I am very grateful for that explanation. At this stage, it is exactly what I was hoping for. I beg leave to withdraw the amendment.
106A: Clause 5, page 17, line 2, at end insert “and having regard to the general duty to provide those services honestly, fairly and professionally in accordance with the best interests of the consumers in question”
Lord Sharkey: My Lords, I shall also speak to Amendment 138A. Amendment 106A adds to what the FCA must “have regard to” when considering the degree of consumer protection. It adds the requirement to have regard to the general duty of providers of financial services,
“to provide those services honestly, fairly and professionally in accordance with the best interests of the consumers in question”.
Amendment 138A adds to the regulatory principles to be applied by both the PRA and the FCA. It adds the principles that,
“authorised persons should act honestly, fairly, and … in accordance with the best interests of consumers who are their clients”,
“authorised persons should manage conflicts of interest fairly, both between itself and its clients and between clients”.
These provisions, or something very like them, already exist as FSA principles 6 and 8 in section PRIN 2.1.1 of the FSA Handbook, but crucially those are principles and do not have the force of law directly. Perhaps 30 years or so ago, that would have been a satisfactory situation. If the culture and current practices of our financial institutions were robust, morally sound and possessed of a sense of the common good then the amendments I propose would probably not be necessary. However, the culture and current practices of many of our financial institutions are not robust, not morally sound, and certainly not possessed of a sense of the common good.
As the noble Baroness, Lady Liddell of Coatdyke, said an hour or so ago, there have been numerous scandals. There was the mortgage endowment scandal, for example. There was the selling of precipice bonds to pensioners. There was the payment protection insurance scandal. Most recently, there was the mis-selling of interest rate swaps to SMEs. Every day seems to bring news of yet another gigantic scandal. Yesterday HSBC apologised to the US Congress for, among other things, breaches of US anti-money-laundering regulations and poor record keeping. It turns out that 41% of the bank’s accounts in the Cayman Islands had no customer information attached to them at all. Senator Levin described the bank’s culture as “pervasively polluted”.
It is no wonder that confidence in financial institutions has fallen most dramatically here in the UK. The recent Ernst and Young survey on global consumer banking reports that 63% of UK consumers say that their confidence in the banking system has fallen. That is the highest fall in Europe, and higher than in the USA. It seems to be the case that statements of principle promoted by the FSA no longer command either the respect or the compliance of some of our largest financial institutions.
Over the past few weeks, there has been much public discussion of the moral and cultural failures in significant parts of our system. I do not believe that these failures can be addressed by exhortation. I believe it requires legislation to begin to change these moral and cultural failures, and to encourage the emergence of more responsible and ethical behaviour. I do not believe that we can rely on the banks to change in an appropriate and timely way without specifying what some of those changes should be. That is what these amendments are designed to do, by proposing to put into the Bill what is essentially a duty of care—not, perhaps, the most popular concept this afternoon—for the financial services industry in respect of its dealings with ordinary consumers. We may regret that it has come to this, but it has. It is plain that our trust in much of our financial system to behave ethically was grossly misplaced. These amendments try, in some small way, to correct some of that. I beg to move.
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Baroness Drake: My Lords, Amendment 107 is in my name. Bob Diamond said in November 2011 at the “Today” programme lecture:
“Our culture must be one where the interests of customers and clients are at the very heart of every decision we make; where we all act with trust and integrity.”
This amendment puts that principle in the Bill, by adding to the FCA’s consumer objective that it must have regard to the general principle that,
“where consumers properly repose trust in a firm’s discretion and are vulnerable to the exercise of that discretion, the firm has a duty to act in the consumer’s best interests”.
That is simply what millions of people want, and they will not understand if it is denied to them. The basic principle is simple: if you have discretion when looking after someone else’s money, the starting point should be that you act in that person’s or that client’s best interests.
I anticipate that the Minister will argue against the amendment, citing the fact that current FSA rules already say that firms must,
“pay due regard to the interests of its customers and treat them fairly”,
but paying due regard is not enough to rebuild trust in the industry, and experience shows us that it falls short of any kind of duty of care. Firms may not get every decision right on every occasion and risk will not go away, certainly in investments, but firms should at least be able to demonstrate that when they exercised their discretion and took a decision, they believed that they were acting in the client’s best interests. The Government have expressed a preference for the FSA rules to lay out a specific, clear, focused and transparent set of duties on firms, but rules are geared to achieving compliance rather than changing behaviours. There must be a guiding principle to inform the content of those rules—the duty to act in the consumer’s best interests. People in positions of trust in financial companies have to change their behaviour. We simply cannot carry on the way we are.
The FSA is attributed with the comment in FTfm on Monday 16 July that,
“fiduciary duties are more of an aspect of common law rather than something established by its rules and regulations”.
That basically amounts to the FSA confirming that under the existing proposals it does not see it as part of its remit to uphold the standard of protection that the amendment proposes. Hence, that is a very compelling argument precisely for this amendment. Others will argue that the amendment imposes a new obligation on firms and that it is not a reasonable standard to ask of a commercial entity. I am not sure that it imposes a new obligation but it certainly makes it explicit. In oral evidence to the Joint Committee Martin Wheatley, CEO-designate of the FCA, said that,
“firms … have responsibilities in terms of appropriateness, in terms of their conduct and in many cases they also have a fiduciary responsibility to clients”.
The wording of the amendment reflects legal principles in that the Law Commission’s summary of the characteristics of a fiduciary relationship are discretion, power to act and vulnerability.
The principle in this amendment is not inconsistent with a commercial entity’s desire to make a profit: what it prevents is unauthorised profit or profiteering at the expense of clients. Firms can continue to have and pursue their own interests, just not at the consumer’s expense. Conflicts of interest need to be properly managed. Again, some may argue that a duty to act in the consumer’s best interest is not the right standard
to impose across the board between providers and consumers, but the amendment would not apply across the board. It would apply where consumers have a particular relationship with providers that relies on a firm’s exercise of discretion and they are vulnerable to it.
In their response to the Joint Committee report, the Government inserted the new principle in the Bill, to which the FCA must have regard, that,
“those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate”.
The amendment gives clarity to what is an appropriate level of care where trust and discretion are involved to set a higher standard of protection. A duty to act in the consumer's best interest is clearer in its requirements to avoid and manage conflicts of interest. Where a client reposes trust in the firm's discretion and is vulnerable to the exercise of that discretion it is not enough to balance competing interests. Rather, the firm must ensure that conflicts cannot damage clients.
Separating retail and wholesale banking is part of the solution to addressing financial stability and integrity, but it is not the whole answer. Millions of ordinary people are saving, directly or indirectly, through the capital markets and are vulnerable to the exercise of discretion by a long chain of intermediaries. Legislation must protect not only the integrity of retail banking but the interests of the savers in so-called casino banking. “Casino” may be appropriate for the behaviour of some intermediaries—the fund managers, traders and others—but it is not the underlying purpose of the investment market. As auto-enrolment into workplace pensions gets under way in October, millions more people will be added to those saving through these markets, many of them low and modestly paid workers. Even before auto-enrolment, which will bring billions more into these markets, £380 billion is invested in DC pension schemes in the UK. That excludes the billions in DB schemes, investment ISAs and other products and with-profits investments.
The Centre for Policy Studies has just published Michael Johnson's report Put the Saver First, which I have just read. Although I may not agree with all of his recommendations, it makes an excellent contribution to the debate as to why the financial services industry is mistrusted. It states that the financial services,
“industry would appear to have forgotten that customers are providing the scarce resource upon which the whole of the … industry relies: their savings capital … Essentially, the industry should put the customer at the centre of everything it does … It is clear that many people are investing in products they do not fully understand, which are governed by a jungle of complex rules and tax regimes that, collectively, almost nobody understands. Savers are therefore putting their trust in the industry, and they need to be protected in situations in which the industry has a knowledge advantage. For almost all investors, this excludes very little. A less subtle description is that regulation should protect investors from the industry’s self-interest, its inefficiencies and, in some cases, its predatory instincts”.
In an investment industry with a long chain of intermediaries, the saver exercises virtually no influence over many key decisions. Indeed, at the behest of the Government, Professor John Kay is examining the lengthy investment chain and the implications for efficient capital markets. There is no shortage of evidence of misalignment and conflicts of interest between the
consumer and the providers. The interests of the end users of capital markets—the savers and investors and those seeking capital—need to be reasserted. That in turn will support UK economic interests.
The Bill should address the cultural issues by reasserting the appropriate nature of the relationship between provider and consumer, where the latter is vulnerable to the exercise of discretion by the former and where financial services have too often been seen as controlling the real economy rather than supporting it. The LIBOR and EURIBOR rate-fixing scandal made many organisations furious because it subverted the integrity of a pricing mechanism at the heart of the capital markets. Promoting consumer engagement and empowerment is of course welcome, but it cannot be a substitute for greater clarity about the roles and responsibilities of each player in the investment chain.
Lord Stoneham of Droxford: My Lords, I am pleased to speak in support of Amendment 107, which was spoken to so well by the noble Baroness, Lady Drake, and I also have sympathy with the other amendments in this group tabled by my noble friend Lord Sharkey.
My personal interest in the success of the coming revolution in pension policy through auto-enrolment makes me especially keen to support this group of amendments. We have to rebuild trust in the financial services sector, where culture is currently suspect, to encourage greater pension savings. An explicit “consumer’s best interest” principle in the Bill would be a powerful tool for the FCA to ensure consumer interests are protected. Fiduciary duty requires those entrusted with other people’s money to put those customers first and provide appropriate stewardship, not to exploit their position to make an unfair profit or to get involved in undue risk where it is inappropriate. If duties were properly observed and enforced, it would provide a sea change in the prevailing culture of the financial services industry and lead to a much better outcome for consumers.
The problem is to get the balance right between consumers and firms. Concern was expressed in pre-legislative scrutiny that the draft Bill was unbalanced, enshrining the principle that consumers are responsible for their decisions but not placing an equivalent responsibility on firms. The new principle, inserted by the Government, to which the FCA must have regard, is that,
“those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the … risk involved”,
and the consumers’ capabilities.
The question is whether we are prepared to leave this so vague and open to interpretation that it would provide very weak guidance. With respect, it leaves open the question that it was intended to resolve. For those managing long-term savings, the problem is precisely that there is confusion and misinformation about the appropriate level of care. Explicit confirmation that those managing other people’s money must act in their best interests would be a clear and effective way to get the balance right in the equivalent responsibility for consumers and firms.
When the Bill was considered in the other place, the Minister argued on this clause, as amendments were submitted for an explicit reference to fiduciary duty in the Bill, that:
“Customers should not have to dust down the old statute books and dig out their dictionaries … to identify what standards they can expect from providers”.
He said that it was better for the FCA to set out clear and specific standards via its rules. He also said that he was not convinced that fiduciary duty,
“is the right standard to impose across the board between providers and consumers”.—[
Official Report
, Commons, 1/3/12; cols. 271-72.]
Our Amendment 107 tries to address these objections. First, it does not rely on the term, “fiduciary duty”; it simply enshrines the common-sense principle that underpins these duties. Where consumers rely on a firm’s discretion, that discretion must be exercised in those consumers’ best interests. Secondly, it would not supersede or restrict the specific standards to be laid down in FCA rules, but rather provide an overreaching principle that the FCA should bear in mind when setting those rules. Thirdly, it would not apply across the board but only where appropriate, particularly where consumers have a relationship with providers that justifies a best-interests standard. I hope that the Minister will closely consider this matter and strengthen Clause 5 by accepting these amendments.
Baroness Hayter of Kentish Town: My Lords, this is perhaps the most important debate today—perhaps the most important of the whole clause—because these amendments are about requiring savings to be managed in the interest of savers, not financial intermediaries. As we have already heard, the Joint Committee recommended that the Bill,
“place a clear responsibility on firms to act honestly, fairly and professionally in the best interests of their customers”.
That should not be too much to ask. As my noble friend Lady Drake said, the Law Commission confirmed that where firms are managing other people’s money, or giving financial advice, they have fiduciary duties to act in those people’s interests, both individuals and institutions such as pensions that represent, after all, large numbers of individual savers. That fact is, sadly, not generally reflected within the industry. Because these are common-law duties, as we have heard, they do not form part of the FSA’s regulatory approach, hence they need to be repeated in the Bill, partly to comfort consumers that the Bill does not trump these common-law protections, partly to give the FSA a powerful tool to ensure that consumers’ interests are protected and partly to ensure that this duty of care is absolutely entwined in the industry’s DNA, where it has, until now, been lacking.
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It is not just me. Michael Johnson of the Centre for Policy Studies, who I have to explain does not share my political leanings, has written:
“The ethos of fiduciary duty should be resuscitated across the industry”.
Like the noble Lord, Lord Stoneham, I have the example of pensions in mind.
Amendment 107 seeks to enshrine the principle that where consumers rely on a firm’s discretion—we must remember, that they are often part of a long chain, as my noble friend Lady Drake said; they often see or know nothing, as with the LIBOR adjustments—then the firm’s discretion must be exercised in the consumer’s best interests. Inter alia, that means not exercised so as to pump up bonuses or shareholder value.
As we have heard, the Joint Committee called for the FCA to be empowered to hold firms to account by upholding this duty to act in clients’ best interests. The response from the Government was, unfortunately, insufficient, as my noble friend Lady Drake said, in that they only asked the FCA to have regard to the principle that there should be a level of care appropriate to the consumer involved and that the need for advice should be accurate, timely and fit for purpose. That is vague, in the words of the noble Lord, Lord Stoneham, but it also does not go far enough. Nor does the FCA’s mandate to promote effective competition in the interests of consumers, welcome though it is.
Competition is fine in a perfect market where consumers have perfect information, but not for these credence goods whose outcomes might not be known for 20 years; not when terms are used which are meaningless to the client but not the seller; not where products are bought to cover risks about which any normal consumer can have little depth of understanding; not where prices are opaque, so that shopping around is impossible; and not for non-repeat purchases, where none of the consumers can ever become savvy.
Yes, the Bill provides for improved consumer protection via the product intervention, the transparency and disclosure advances, but product intervention is following a failed product, by which time purchases will have been made and disclosure rules still do not compensate for how much more the provider knows about risk than does the individual consumer. We welcome the requirement for the FCA to have regard to consumers’ different experience and expertise, and their need for information that is timely, accurate and fit for purpose, but we want firms themselves to have to sign up to and enforce a duty to act in the client’s best interests, along the lines of Amendment 138 in the names of the noble Lord, Lord Phillips, and the noble Baroness, Lady Kramer, that regulated persons and bodies should assist consumers in taking responsibility.
The duty to work in the client’s best interests needs to be in the DNA of every firm, not simply a regulatory intervention power by the FCA. Just as a solicitor’s client charter says that he will put the client’s interests first—and, incidentally, explain what the costs are likely to be—so there should be an expectation on anyone handling clients’ money. To quote Michael Johnson again,
“all pension schemes should be subject to fiduciary-like obligations”.
I believe that these amendments are central to whether the Bill works for consumers, the individuals on whose savings much of this industry is built. Consumers should be able to trust those who advise them, who care for their money and provide financial services; they should be able to trust that the client’s interests will always come first.
Lord Sassoon: My Lords, there is a lot to deal with because of the number of amendments in this group, although they all broadly cover the same ground. I feel that if I err on the side of treating them in short order I will not do justice to each individual amendment, but if I deal with each in turn I risk going on too long. I think that in this case I should probably err on the side of doing justice to these amendments, because each is somewhat different.
The amendments all focus on the need for firms and advisers to act honestly, fairly and professionally in the interests of consumers. This follows a recommendation from the Joint Committee in its pre-legislative scrutiny of the Bill. I doubt that anyone in this Committee would question the need for such integrity in firms’ dealings with their customers—certainly, they have not done so in this debate—but I do not believe that the approach suggested by the amendments would help secure the outcome intended.
I can assure noble Lords that we carefully considered the wording suggested by the committee, but concluded that the best way to address the concerns underlying its recommendation was to modify the matters to which the FCA is required to have regard, thus reflecting what firms should already be doing, rather than to seek to impose directly some kind of high-level duty on firms.
The consumer protection objective ensures that, as the FCA acts to protect consumers, it will be required to have regard to the level of care that firms should provide to their customers, based on the level of risk involved and the capability of the customers. This is set out in new Section 1C(2)(e). The phrase “level of care” is wide enough to ensure that fairness, honesty and professionalism, and certainly acting in consumers’ best interests, are all taken into account. I am not sure how the amendments being proposed would add to the existing provisions; in fact, they may narrow the definition of “level of care that is appropriate”, which I am sure the Committee would not wish to do.
I thought that I heard my noble friend Lord Sharkey refer to the enforceability in law of principles of regulation. I make it absolutely clear that principles of regulation are indeed enforceable in law. It was those general principles which the FSA used to pursue, for example, the Barclays LIBOR case, and it will be exactly the same for the FCA and the PRA.
Amendment 106A would create a “general duty” for firms to act in the way that the amendment suggests. Such a duty would be so high level and vague as for it to be very difficult for firms to know what was expected of them, and it is far from clear what, if anything, such a duty would add to the contractual requirements and terms that already protect clients and consumers. Such a vague duty would also be difficult for consumers or the regulators to enforce. It is the Government’s position that it is clearer, better and safer for consumers for the FCA to make a body of clear, specific and targeted rules that give both firms and consumers an understanding of what level of care is expected, and that is the approach that we have taken.
Amendment 136A would add to the “senior management” regulatory principle an acknowledgement of the requirements for senior management,
“to act honestly, fairly and professionally”.
As with Amendment 106A, I do not believe that this addition would benefit consumers. Both the PRA and the FCA will have powers, under Sections 56, 63 and 64 of FiSMA through amendments made by Clauses 11 and 12 of this Bill, to take action in relation to a failure on the part of an approved person to act in a fit and proper manner in performing functions in relation to regulated activities. Therefore, there is already a perfectly clear and sufficient mandate to ensure that, if either regulator judged an individual to be acting in a way that was not honest, fair or professional, they would be prompted to take robust action against them, up to the removal of their status as an approved person. We do not need extra provision to make this happen. I hope that I can assure the Committee that the amendment is not required.
Amendment 108C would require the FCA to have regard to,
“the general principle that firms or advisers must act honestly, fairly and professionally in the best interests of their customers”.
We agree that they should, but the amendment would not guarantee that they would. It would not establish any duties on firms additional to the detailed rules made by the regulators. It would instead add something to which the FCA would have to “have regard” when considering what was an appropriate level of consumer protection. As I have already said, new Section 1C(2)(e) already deals with the point.
Amendment 138A would include the same phrases, “honestly, fairly and professionally” and “best interests of consumers” in the list of principles to which both regulators will have regard when carrying out their general functions. In addition, it would add the principle that,
“authorised persons should manage conflicts of interest fairly, both between itself and its clients and between clients”.
While I agree with the sentiment of both of these suggested additions, I have to say that they are again unnecessary. I have already explained why I believe that the wording referring to the expected level of care in the FCA’s consumer protection objective is the best way of ensuring this.
On the specific issue of conflicts of interest, if firms were not appropriately managing conflicts of interest, it is unlikely that they would be providing an appropriate degree of protection to consumers. In those circumstances, the FCA would have very clear powers to act. I am not convinced that the amendment would give the FCA power or authority that it does not have already. I thank noble Lords for tabling these amendments and assure them that I understand their concerns. However, in advancing its consumer protection objective, the FCA will already be focused on ensuring that firms treat their customers fairly, honestly and professionally and act in their interests.
Amendment 107 would include in the list of things to which the FCA must have regard when considering what degree of consumer protection is appropriate a firm’s responsibility to act in consumers’ best interests where the consumer has reposed trust in the firm. I should recognise that the noble Baroness, Lady Drake, made a valuable contribution to the Joint Committee
that considered the draft Bill. I am pleased to see that Amendment 107 in her name continues that input into these Committee proceedings.
I am sure that we are all again in agreement that financial services firms should always act in the best interests of their consumers. It is an issue which it is important to discuss, as I shall go on to do, but, as the noble Baroness would expect, I argue that Amendment 107 would not ensure the outcome that we all desire. Instead, it would add something that the FCA would have to consider when deciding what was an appropriate degree of protection for consumers. It would require the FCA to proceed on the basis that there is a “duty” for firms to act in their consumers’ best interests where consumers place trust in those firms. Acting,
“in the consumer’s best interests”,
is a noble aspiration, but defining what this means is difficult, particularly in the context of the FCA determining what level of consumer protection is appropriate under such a duty.
The best way to ensure that firms act in their customers’ best interests is not through a general duty on firms. The noble Baroness acknowledged that there would be a difference of view about whether the amendment would impose a new duty on firms. Again, she will not be surprised that I argue that the analysis we have done suggests that there is a new general duty here, but we think that the better way to do it is through FCA rules and principles in support of the consumer protection objective—rules that must be clear, specific and enforceable, and that act to protect consumers against firms that do not or may not act in their interests. Therefore, while I disagree with the substance of the amendment, I support its driving principles. This is why we are creating the much more focused conduct-of-business regulator, the FCA, which will have a very clear consumer protection objective and the suite of new powers to protect consumers that we have discussed.
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Amendment 108D would add a further factor to which the FCA would be required to have regard when considering what level of consumer protection was appropriate. It states that,
“discretionary asset managers will ordinarily owe fiduciary duty to their clients”.
I think we have already had one dictionary definition of “fiduciary duty” in this Committee sitting, but let me quote the Oxford Dictionary of Finance and Banking, which says:
“Persons acting in a fiduciary capacity do so not for their own profit but to safeguard the interests of some other persons or persons”.
The concept is plainly sound and I understand the concerns that are raised here. Firms engaging in discretionary asset management take on the responsibility to manage the assets of their clients on behalf of their clients, so do asset managers owe a fiduciary duty to their consumers? I will answer with my best understanding, as a non-lawyer, of the common law position: sometimes the answer is yes and sometimes the answer is no. It will depend on the facts of the case. Such is the beauty of our common law.
Adding this amendment to the list of factors to which the FCA must have regard when considering what is an appropriate level of consumer protection would, I am advised, serve only to muddy the waters. It would require the FCA to engage with some rather arcane provisions of common law to ascertain whether or not a fiduciary duty exists. If a fiduciary duty were found to apply, the FCA would then have to ascertain how that duty applied to the facts of the case. What if the fiduciary duty were insufficient to protect consumers? This amendment would cast doubt on the ability of the FCA to impose obligations on asset managers that go beyond the standards required by such a fiduciary duty.
Comparing this amendment with the effect of the Bill as currently drafted, one finds that the wording “level of care” is broad enough for the FCA to consider what standard of care authorised persons should provide to their consumers. I prefer this plain English and straightforward approach to one that resorts to concepts from common law, which are both imprecise in terms of scope and inflexible in terms of their application.
Again, I fully understand what is being got at here, but I believe that this amendment would, no doubt inadvertently, take us into difficult areas of common law as opposed to common English, which the Bill currently has in its favour.
Similarly, Amendment 138B seeks to require both regulators to have regard to the regulatory principle that,
“where appropriate, authorised persons should have a fiduciary duty towards the consumers who are their clients”.
I have set out why I believe that assuming or requiring a fiduciary duty for asset managers in particular towards their clients is problematic and may not give the levels of protection that consumers should expect. We have seen that the benefits of such a duty would not be clear-cut, and adding this principle to the regulatory principles of the PRA as well as the FCA would again just muddy the waters.
The FCA has a clear mandate to ensure that the consumers of all authorised persons receive an appropriate level of protection, as determined by their particular requirements and circumstances, without the need to assess whether that level of care in fact constitutes, or should constitute, a fiduciary duty. This amendment could introduce a burdensome process for the regulators in determining whether a fiduciary duty was appropriate, without in any way increasing what is really important—the care that a consumer would receive, which is the outcome that we want.
Amendment 138 would insert the principle that regulated firms should,
“reasonably assist consumers in taking responsibility”,
for their decisions in the form of a factor to which both the PRA and the FCA would have to have regard when carrying out their general functions. I agree that firms should assist customers in taking responsibility for their decisions. Many participants in financial markets are subject to information asymmetries so cannot transact with firms on a level playing field, and of course there is a role for firms to ensure that their customers understand the decisions that they are
making. This is clearly a market conduct issue and is already embedded in the FCA’s consumer protection objective.
When pursuing this objective the FCA must have regard to a number of factors when considering what is an appropriate degree of consumer protection. These are already set out in the Bill and include,
“the differing degrees of experience and expertise that different consumers may have … the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”;
“that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate”.
These provisions will allow the FCA to ensure that firms offer their consumers a level of care that may go further than offering “reasonable assistance”, so again I suggest that this amendment is unnecessary and may be constricting.
I have given, I trust, a full analysis of these amendments. I hope that my noble friend will understand that while he raises some very important points, the construct we have within the Bill means that these issues, which were raised by the Joint Committee, are taken into account fully within the consumer protection principles and the other powers and sections of the Bill to which I have referred. Based on those assurances, which refer of course to both the regulators, I ask the noble Lord to withdraw his amendment.
Baroness Hayter of Kentish Town: I am not quite clear, despite all the noble Lord has said, how conflicts of interest will be dealt with. This is not about timely advice or all those other things he mentions, but it is absolutely central to the issue of duty of care.
Lord Sassoon: To be absolutely clear, the regulators—and the FCA in particular—will have very clear powers to make any further rules on top of those that already exist in the FCA’s rulebook in order to deal with conflicts of interest. I can be completely clear and unequivocal on that point. The powers are there and further rules can be made in this area if the FCA at any point regards them as necessary.
Lord Sharkey: I thank the Minister for his detailed response. I listened very carefully to everything he said, but I was not convinced by the notion that this group of amendments might narrow the FCA’s scope to act in this area. I was equally unconvinced that the general duty to provide services honestly, fairly and professionally was too vague, wide or ill defined, if that is what the Minister was actually saying.
I continue to believe that there is merit in an explicit inclusion of the two principles that we suggest in the list of the regulatory principles common to both the PRA and the FCA. The debate has also shown the high level of concern about this whole area. The detail of the Minister’s response shows that he is alive to that level of concern. I expect that we will return to this matter on Report. In the mean time, I beg leave to withdraw the amendment.
106B: Clause 5, page 17, line 2, at end insert “and the requirement that all asset managers shall disclose the nature of their commitment to the stewardship code or explain their alternative investment strategy”
Baroness Hayter of Kentish Town: Amendment 106B stands in my name and that of my noble friend Lord Eatwell. Oddly, there is no mention of the Financial Reporting Council in the Bill, despite its central role in the regulation of financial services. Equally absent is the FRC’s stewardship code, although it is clearly relevant to the objectives of both the PRA and the FCA. In the case of the stewardship code or the UK corporate governance code—also strangely lacking; perhaps it is my fault that it is not mentioned in the amendment—the Bill’s drafters may say that that absence is due to the fact that the precise name of the codes may change over time. I think that it was the Cadbury code, then the combined code, then something else, and now it is the governance code. I understand that the drafters may say that they do not want the precise wording of the stewardship code or the corporate governance code included, but I am sure that it is not beyond the wit of drafters to include something such as, “such codes agreed by the FRC as are currently in force”.
The issue of codes and their enforcement is central to the behaviour, standards and culture that we expect of the industry. The Minister has already rejected a code of conduct, but these are separate to that. Since 2010, there has been reasonable progress with the introduction of the stewardship code. About 230 asset managers, asset owners and service providers signed up in the first 18 months of its existence. The stewardship code is addressed to firms which manage assets on behalf of institutional shareholders, although perhaps it was not top of the thoughts of those fixing the LIBOR rate: people who were dicing with money which belonged to others.
Amendment 106B would ensure that the Bill gives regulators a proper, clear mandate to strengthen the stewardship code if needed and, importantly, sufficient teeth to ensure that it is adhered to so that culture changes can happen. In another place, Mark Hoban noted that the FSA supports the FRC’s stewardship code through mandatory requirements on asset managers either to comply with the stewardship code or explain their alternative investment strategy. He said that such powers would transfer to the FCA, but that power is not laid down in the Bill. Surely we need to ensure, via the stewardship code and its monitoring by the FCA, that asset managers must demonstrate their commitment to the code. It needs the force of law to make it happen, because that has clearly not been the case so far.
I turn to the other two amendments in the group, which deal with co-ordination between the FCA and the Financial Reporting Council. Amendment 121B is intended to ensure such co-ordination and Amendment 121C would require a memorandum of understanding. I hope that we do not go back to the briefing from the Box that says, “Say no to memorandums of understanding”. It makes no sense for the Bill to
ignore the Financial Reporting Council. It is the UK’s independent regulator to promote high-quality corporate governance. Again, in the other place, Mark Hoban emphasised that the matters of stewardship and corporate behaviour are predominantly the responsibility of the FRC via its codes and the Bill should be about corporate behaviour. Thus, we require to see co-operation—indeed, an MoU— between those two parts of the new regulatory architecture. The two codes need the impetus of an FRC requirement to comply or explain if they are not just to be left on someone’s shelf.
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Even more, as I mentioned earlier, we need to develop a new code of conduct for bankers. As Ed Miliband has said, if we are serious about banking regaining the status of the professions, we need a code that goes across the industry. The FRC deals with codes. It is the regulator for accountancy and actuarial professions, including itself operating independent disciplinary arrangements for public interest cases. It oversees the regulatory activities of the professional accountancy bodies and the actuarial profession, including bodies such as the ICAEW, which authorise regulated members to carry out company audits. The FRC thus oversees the disciplinary systems of the regulated persons working within the financial sector. Close co-operation between the FCA and the FRC is essential to strengthen the standards expected of professionals and their organisations and in the monitoring and disciplining of those professionals or their companies.
The FCA will rightly be able to disqualify but also to discipline. However, the first-line discipline lies mostly with the recognised professional bodies and, after that, with the FRC, which can deal with accountants and their firms, auditors and their firms and actuaries—although not their firms. I know that the FRC is already thinking about an MoU with the FCA, in part to ensure that any disciplinary action is co-ordinated and that auditors and actuaries are not subject to double jeopardy or—my fear—semi-jeopardy. Discipline is one area where FRC-FCA working is needed, but there are other aspects. As the noble Baroness, Lady Noakes, who is not in her place at the moment, noted on 3 July, new Section 9Q allows the FRC to make recommendations to the whole world. Although not specified in the Bill, the Explanatory Notes to new Section 9Q cite the FRC as an example, as the Minister said previously in Committee specifically in relation to corporate governance standards.
The FRC also sets standards for monitors and oversees the work of auditors. It is notable that none of the recent failures was found by auditors, which begs some pretty big questions. The present Governor of the Bank of England has identified changes needed to the auditing profession and role, with less window-dressing of accounts, especially in disguising leverage. The Joint Committee suggested that the Treasury should consider whether a duty should be placed on auditors to draw certain risks to the attention of regulators. HMT has responded that the FCA would have powers to make rules imposing duties on auditors, but such rules and their monitoring and enforcement largely reside with the FRC—another reason for the need for the clarity of an MoU as to who does what.
As a standard-setter, the FRC’s links with European bodies are key, but many of them will be led by the FCA or the PRA, which again means that the working relationship between the FRC and its voice in Brussels needs to be clear, as well as transparent via an MoU. I will take one moment to tell you a story about the need for that to be joined up. When I was working with the FRC, I was also working with the Insolvency Service’s Insolvency Practices Council. I was very aware that certain banks were putting people into debt management systems rather than into an independent voluntary agreement. The reason was that if it was an IVA, it could not be carried forward as a debt, it had to be written out of the bank’s accounts. Putting them into a debt management scheme made what were quite toxic loans appear normal. Having heard about this through the Insolvency Practices Council, I went to the FRC and said, “Your rules do not seem to allow for that”. The FRC said, “Our rules are absolutely fine on that, but they are enforced by the FSA”. So I wandered across to my old friends at the FSA and explained all this. I said that the rules said they should not be shown as good debts when they were actually bad debts. The FSA looked it over and said, “Ah, that’s very interesting, but it’s a credit issue. Her Majesty’s Treasury deals with that”. So I went back to the lovely lady who I worked with in the Treasury and told her the story. She said, “That’s very interesting, but the rules for auditing are made by the FRC. Why don’t you go there?”. That is simply an example of no one taking responsibility. We need an MoU to be absolutely clear who will deal with it when something needs doing.
The financial services sector is made up of people—that is basically all it is, along with some clever computing powers. They are professionals, trained to standards set by professional bodies, working to technical standards agreed by the FRC, abiding by ethical codes adopted by their professional bodies which are overseen by the FRC. If we are to make any progress in improving behaviour and standards, the FRC will be an integral part of that. It is a body that must be recognised in the Bill, and it must be under a mutual obligation to work closely with the FCA. I beg to move.
Lord Sassoon: My Lords, I am sorry to say that this is one of those groups of amendments where I do not think that the Committee’s time will be well served. I have repeatedly made public and private offers to the opposition Front Bench to talk to us in the Bill team at any time about any of their amendments. Not once in the process of this—now long—Committee stage, or before it, have the Opposition taken up the offer of talks to discuss amendments.
Baroness Hayter of Kentish Town: My Lords—
Lord Sassoon: If the noble Baroness will let me, I will complete my sentence before letting her in. She herself began by saying that these amendments are defective, and that is indeed the case. As I shall explain, however, they also do not reflect one or two of the simple facts of the situation. Although there is, of course, a proper concern in this area, if the party opposite were prepared to discuss those facts, we might not be talking about some of these amendments in the way that we are.
Baroness Hayter of Kentish Town: My Lords, that offer has not come to me. I was at one meeting with the Bill group and asked whether I had access to the Bill team, but I have yet to be given its e-mail address. I had an e-mail from the team about one of our amendments earlier this week, and I have written to it on another issue. I have not had repeated offers. I have talked to the FRC about this amendment, and it knows all about it. I am therefore slightly surprised by the Minister’s comment.
Lord Sassoon: My Lords, I believe that I made the offer in the last Committee session, on the Floor of the House. Hansard will record when I last made the offer in this Committee. I cannot speak to every member of the opposition Front-Bench team but I have made the offer repeatedly to the noble Lord, Lord Eatwell. Indeed, I know that the Bill team has made quite clear to the opposition research team how it can be reached. I make the offer again because I think that there are many things around which we could clear the ground, and that would be helpful for everybody. I can quite understand that there may be issues here, but there are many interested parties who put forward all sorts of good ideas for amendments which, on scrutiny, might not be reflective of the situation as it exists.
Let me help the noble Baroness with a couple of the facts of the situation. First, the FCA has already brought in a rule with which she may be familiar but to which she did not allude: rule 2.2.3 of the current Conduct of Business Sourcebook. This requires UK-authorised asset managers to put statements of commitment to the stewardship code on their websites, or—if an asset manager does not commit to the code—to provide its alternative investment strategy there. I would of course expect the FCA to carry forward this important rule in its own rule book. So I would suggest to the Committee that the suggestions underpinning the discussion we have just had—the contentions around the lack of joined-upness—are not reflected in the way in which the FCA Conduct of Business Sourcebook already explicitly refers to the stewardship code.
I agree with the noble Baroness completely about the need for an MoU. However, what she does not do in her speech this evening is to recognise that the FSA already has an MoU with the FRC. I believe that it covers all the relevant matters. We have discussed the subject of MoUs before. The Bill provides explicitly only for MoUs between the key players in the regulatory system: the Bank of England, the FCA, the PRA and the Treasury. We have discussed why that should be. That does not mean that there will not be—and are not already—MoUs between the new regulators and other bodies; we have talked about the OFT, and there is already an existing MoU with the FRC.
So I understand where the noble Baroness is coming from in this group of amendments. I believe that the matters are already properly accommodated within the Bill. I wish that we could have had a discussion about this outside the Committee, but I am glad to have now got that on the record. I would ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town: My Lords, it would not be very satisfactory not to consider such an
important issue in Committee. Concern about it is shared not just by the FRC but by the ICAEW, which last night again expressed its support and its belief that the issue is important. As the Minister will know, there are vital and urgent requirements to improve client asset audits. Those can be undertaken only by regulated professionals overseen by their recognised professional bodies, such as the ICAEW, and these are overseen by the FRC rather than the FSA. So this is key stuff. This is not—this will sound awful but I will say it—“a little discussion with the Baroness, who does not really understand it but can be well briefed outside this House”. I think that that was the tone of the Minister’s comments. I am speaking on behalf of organisations such as the ICAEW, which feels very much that it has a key role to play, which it wants to play, in the regulation of this industry. We know that we need improved rules and guidance about how auditors should work. We know that this is in the hands of professional bodies, not the FCA. If there is already an MoU with the FSA, it seems to me that there will be one with the FCA. So I do not think that writing it in legislation will cause a revolution, nice though that would be. There are important issues of discipline in the hands of ICAEW and other professional bodies overseen by the FRC. It would be inadequate for those to be free-floating and not in the Bill. For the moment, however, I beg leave to withdraw the amendment.
Lord De Mauley: My Lords, the noble Lord, Lord Patel, has withdrawn his name from the following debate. I therefore suggest that there is now time for speakers other than my noble friends Lady Jolly and the Minister to speak for up to five minutes each.
NHS: Specialised Services
Question for Short Debate
7.30 pm
To ask Her Majesty’s Government what is their assessment of the future of the work of the Advisory Group for National Specialised Services.
Baroness Jolly: My Lords, I declare an interest as chair of the Specialised Healthcare Alliance, a coalition of 79 patient-related organisations receiving financial support from 11 corporate members, which campaigns on behalf of people with rare and complex conditions.
The Advisory Group on National Specialised Services, or AGNSS, was established in 2010. Its role was to provide a single source of advice to Ministers on whether services, products or technologies for very small patient populations, usually not exceeding 500 for England as a whole, should be commissioned at national level rather than by PCTs, individually or collectively. Some 65 services are enormously important to over 10,000 people with a range of very severe and frequently life-threatening conditions.
What makes AGNSS different is that it brings eminent clinicians together with commissioners in considering these complex matters and integrates other vital perspectives through members with health economics and ethical expertise and from the lay community. For the first time, AGNSS evaluates services, products and technologies using an ethical decision-making framework that holistically balances a range of factors, including patient need, clinical severity, clinical effectiveness, affordability, service efficiency and the value to society. It would be fair to say that the development of AGNSS and its decision-making framework, with widespread input from all parties, was seen as a model of its kind and that the group, under the capable leadership of Professor Michael Arthur, has only grown in stature over the past two years.
Organisations and others with an interest in the health and welfare of people with very rare conditions were greatly concerned when it was announced at the turn of the year that AGNSS would be entering a moratorium, pending decisions about its future. If the reaction to this debate is anything to go by, it is much appreciated and valued by research scientists, organisations representing patients and pharmaceutical companies, who have all expressed their alarm at its possible demise.
My understanding is that this decision stems from the view that an advisory group for Ministers will be incompatible with the provisions of the Health and Social Care Act 2012, which devolves responsibility for the commissioning of all specialised services to the NHS Commissioning Board. To quote from my noble friend the Minister’s letter of 8 June to Mark Simmonds MP:
“In the future, there will be a clear differentiation between what services the Board should commission and how those services are commissioned. It will remain the responsibility of ministers to consider, on the basis of appropriate advice, the list of services that should be directly commissioned by the Board. Ministers will then consult with the Board on those services before laying regulations that will specify the services that will be commissioned. It will be for the Board to decide how it commissions the service”.
As the letter acknowledges, Ministers will need advice on what services are to be prescribed in regulations for commissioning by the board. My understanding is that the Clinical Advisory Group, presently chaired by a civil servant, Dr Kathy McLean, will fulfil this function in relation to the generality of services. The question is whether highly specialised services should be channelled through the same route.
The views of eminent clinicians presently sitting on AGNSS or leading services commissioned through the AGNSS process suggest that this is at least worthy of debate. In particular, AGNSS is recognised as a route whereby such services can engage with commissioners. I am told that this is an iterative and demanding process, taking some considerable time before a decision is taken. The net result is generally one where there are indeed costs to the NHS, but often costs that are reduced as a result of coherent commissioning. For example, the decision to commission severe acute porphyrias means that young people presenting with potentially fatal attacks should now have speedier access to expert care with less wastage of the relevant drug, haem arginate, which has a short half-life. Similarly,
AGNSS was able to advise on the managed introduction of extracorporeal membrane oxygenation, or ECMO, which has saved many people whose lungs are severely distressed, most notably as a result of swine flu.
The danger is that without a clear port of call in the form of AGNSS, these important services may get lost from sight, as will the opportunity to develop them in a way that meets the needs of patients and delivers best value to the NHS. Furthermore, Ministers may be hard pressed to decide on whether the board should commission such services without high-quality advice on what they comprise.
The relevance of these services, not just to England but to all parts of the United Kingdom, would also seem to count in favour of retaining an advisory group alongside Ministers, as would the broader strategic importance of issues such as proton beam therapy. I therefore put it to my noble friend the Minister that in the case of highly specialised services there might be merit in retaining a group providing a single source of advice to Ministers but with a dual reporting function to the board in determining how such services should be commissioned.
As for the composition of this group, I have heard it said from reliable sources that if AGNSS did not exist it would need to be invented. In a recent conversation with Professor Arthur, he outlined the three components that made AGNSS effective, unique and special: the support from the national specialised commissioning team, the strength of the group—an ethicist, a health economist, a geneticist, a pharmacist, representatives of all royal colleges, representatives of SHAs, lay people, carers and patients, commissioners from PCTs and a member of the HTA—and excellent advice to AGNSS from public health doctors.
We are going through a period of enormous change in the NHS, but change for change’s sake is to be avoided at any time—and surely now more than ever. I therefore urge the Minister and the chief executive of the NHS Commissioning Board to think carefully about disbanding AGNSS when the need for it remains unchanged. Historically, the view has been taken that NICE would struggle to combine under one roof the evaluation of products with a cost per quality-adjusted life-year often very substantially higher than the threshold which usually applies. Furthermore, in this highly specialised field, where a service develops around a novel treatment, the distinction between services, products and technology is sometimes difficult to make in areas of previously unmet need.
The AGNSS decision-making framework therefore represents a major step forward. It recognises that the evidence-base for small patient populations may be less developed. At the same time it imposes demanding standards in terms of the number of patients whose condition improves as a result of a treatment, compared to the total number of patients treated. This approaches 100% for more expensive services, products and technologies.
That progress has been hard won and should not be squandered but built upon. In a debate in the House of Commons on 30 April about a strategy for rare diseases, the Minister of State, the right honourable Simon Burns MP, appeared to suggest that value-based
pricing will supersede the need for separate arrangements for treatments for very rare conditions, but that alternative options will be explored in case of need.
All are agreed that value-based pricing has exciting potential. The challenge of expressing that potential will be considerable for the generality of treatments, but it will be undoubtedly greater for very rare conditions. In the mean time, retention and development of the AGNSS framework would seem to have great merit.
AGNSS represents something of a jewel in the crown. The dancer cannot be easily separated from the dance in determining which highly specialised services to commission and how to commission them. Ministers will continue to need high-quality advice. I would hope also that the first mandate to the board recognises the value of this heritage and bestows it for safekeeping.
7.40 pm
Lord Turnberg: My Lords, I am sure that we are all grateful to the noble Baroness, Lady Jolly, for introducing this debate and setting out the issues so clearly. There is deep concern among the support groups that speak for patients with rare diseases that the loss of this advisory group, newly formed as it is, will be a retrograde step and create confusion and a loss of a valuable asset. I have no doubt that the Minister will try to reassure us by saying that this will all be taken care of by the commissioning board. There is little or nothing in the Health and Social Care Act, or in any other document I have seen, that offers any confidence yet that this has been given enough serious attention. I look forward to him saying rather more than we have heard so far when he comes to round up.
It is the case that the advisory group has been widely regarded as doing a marvellous job. It is recognised not only by the NHS and by patients, but also by other countries as a model for the way services for patients with rare diseases should be provided. It does this by having developed a rational framework that takes account of best practice and societal and health gains. It has done so in a way that is efficient and at a reasonable cost.
I would like to illustrate this by using the example of the group of orphan, or very rare, diseases that rejoice under the name of lysosomal storage diseases. These include Gaucher’s disease, Hurler’s syndrome and a number of others. They affect few patients, almost all in childhood. An average GP in an average year is unlikely to see a case. If she is faced with a case she is unlikely to know what to do about it and left to herself is likely to be reluctant to fund the patient’s care.
These are the sorts of cases that have to be funded and commissioned centrally and cannot be left to CCGs. Only when sufficient knowledge and expertise are available can commissioning be rationally arranged. Here, the advisory group has been invaluable. It is not simply commissioning that is needed. The provider services for rare diseases must be distributed in a limited, rational number of places to make the best use of limited resources. Specialised services for children with lysosomal diseases are located in only three places: London, Birmingham and Manchester. For adults they are located in five places around the country.
Only by limiting the number of sites can you expect to develop a critical mass of specialised doctors, nurses and other healthcare workers to provide the best possible care. They are also the places where teaching and research into these diseases can best be done.
That is one example. Similar needs apply to a much larger number of diseases, each of which occurs rarely. The Genetic Alliance UK is an umbrella organisation that brings together over 150 patient-led charities, each set up to support these patients, again mostly children, with genetic diseases. Most of them fit into the category that is covered by the advisory group; that is, they affect fewer than 500 patients a year and currently the advisory group covers about 70 specialised services. For these patients, the advisory group has made all the difference. Yet now there is much concern that all this expertise will be pushed out and dissipated as the commissioning board takes on its multitude of responsibilities.
Can the Minister reassure us and them that there will be a rare disease plan in the mandate for the board? Will the board have access to the specialised expert advice that is so valuable and ready made for this purpose in the advisory board? I am sure that he is well aware of the need and requires no prompting from me on this, but I hope that he is going to be able to say something today that will help allay these concerns.
7.44 pm
Lord Palmer of Childs Hill: My Lords, the noble Lord, Lord Patel, is indisposed and we wish him well.
I thank my noble friend Lady Jolly for initiating this debate and for giving a detailed introduction to the problems mentioned in its title. My concern is specifically with the treatment of Gaucher’s disease, the genetic disease mentioned by the noble Lord, Lord Turnberg. It is the most common lysosomal storage disease. It is caused by hereditary enzyme deficiency. Patients in the UK, together with patients suffering from other lysosomal storage disorders, or LSDs, are treated at nationally designated centres run by the Advisory Group for National Services and I am grateful to my noble friend Lady Jolly for reducing that to AGNSS, which saves me from repeating this long name, or the initials. There are eight nationally designated treatment centres in England serving these patients.
Since 2005, the treatment of LSDs has come under the management of AGNSS, which has allowed LSD patients to benefit from national designation with respect to assessment, diagnosis, clinical management of the disease and assessment of the therapies. The centralised management of LSDs previously mentioned by the noble Lord, Lord Turnberg, and my noble friend Lady Jolly is the creation of eight nationally designated centres and has had the following key benefits.
First, there has been provision to patients of access to experts in the management of these rare diseases. Without this access patients have suffered misdiagnosis, as the noble Lord, Lord Turnberg, said, and inappropriate treatment. Secondly, all patients in England—and it is England that we are talking about—have had equity of access to therapies. Thirdly, a nationally funded
service has provided budgetary transparency for the NHS, ensuring the efficiency and effectiveness of therapies and avoiding unnecessary costs. Fourthly, the ability to launch national tenders for therapy and home care has resulted in further cost savings. Fifthly, there has been the development of national clinical guidelines defining diagnostic treatment and management criteria.
The Government have determined to disband AGNSS as part of the establishment of the NHS Commissioning Board, as has been referred to by other noble Lords. It is not yet clear how this will work and whether this service for the assessment and management of patients with LSDs will remain a distinct body. The potential disbandment of AGNSS and the subsequent division of the assessment and management of rare diseases raises significant concerns that the issues faced by many LSD patients prior to national designation will resurface. These will include delays in access to diagnosis and treatment, regional inequalities and inconsistencies, misdiagnosis and inappropriate disease management, wasted resources in the NHS, and the separation of clinical management and appraisal of therapies.
The current service is envied around the world and in its existing form is an example of the NHS at its best. In other branches of the NHS we are encouraged to create centres of excellence, in terms of heart treatment, heart attacks, strokes and the like. Many hospitals are ceasing those services—to have centres of excellence—but the rationale for them should apply to these rare diseases as well.
Can the Minister assure patients benefiting from centralised commissioning arrangements provided by AGNSS that they will continue to do so in any new arrangements and that there will not be a break-up of the existing services? Can the Minister confirm that the new NHS Commissioning Board will retain a dedicated budget appropriate to meet the needs of LSD patients currently being treated, with provision for potential additional funds for new therapies in the course of development? Can the Minister give an assurance that the new arrangements will not see a return to what is called postcode lottery for treatments of patients with rare diseases? Does the Minister agree that rare diseases requiring specialised services cannot be treated in the same way as more common conditions, and that structures such as AGNSS need to be put in place to ensure that patients continue to be properly and appropriately managed and treated by the NHS?
Finally, the chairman of the European Gaucher Alliance, which represents patients’ groups from 36 countries, tells me that the current structure for the delivery of healthcare to Gaucher’s patients is envied around the world and is the inspiration for their organisations. I hope that the Minister can provide an assurance to the House that this type of service will continue.
7.49 pm
Baroness Hollins: My Lords, until 2008, I was deputy chair of the National Specialist Commissioning Advisory Group, which was a predecessor organisation to AGNSS.
There are some very rare conditions affecting mental health. Services meeting the criteria defined by the noble Baroness have been commissioned, such as:
the children’s gender identity development service, for children struggling with the development of their gender identity; services for those with very severe obsessive compulsive and body dysmorphic disorders; secure mental health in-patient services for young people, including those with learning disabilities and those who pose a forensic risk; and services for young deaf people with acute mental health problems. Each of these disorders is low in overall national numbers, which makes it difficult to assess the suitability of proposed services and treatments. The proposal made in the draft mandate to the NHS Commissioning Board is that the board will commission those services that fall into the national specialised services definition set. I understand that 85 services are being considered, of which about 10 are mental health services. These include some services that were previously commissioned following recommendation by AGNSS, such as the services I have already briefly described.
My worry, and I seek ministerial reassurance on this, is that learning disability and mental health services will fall though the specialist commissioning gap. Some of these services are quite messy. They do not conform to the medical model of rare medical diseases that can be researched in the lab, even if they have a serious impact and are rare. Even moving these services to NICE would create a problem since the research investment needed to provide evidence-based treatment has been neglected until now.
If there is to be parity of esteem between mental and physical illness, people with severe mental illness and with learning disabilities need equal attention to their complex clinical conditions. For example, there is no new, well funded research into drugs to treat serious mental illness and no repurposing of drugs, and I am unaware of any investment into exploring, for example, the role of immunology in drug treatment for severe mental illness.
I would like the Minister to comment on the continuing need for such highly specialist commissioning skills that have been developed within AGNSS and its predecessor NSCAG. There is some concern, which I share, that the successful work of AGNSS will be lost, with the risk of forgetting important lessons learnt about national, highly specialised commissioning in the past few decades. The NHS constitution states that the NHS’s resources are to be used,
“for the benefit of the whole community”,
“make sure that nobody is excluded or left behind”.
There are concerns about whether any group which replaces AGNSS would comprise sufficient expertise to assess the unique requirements of highly specialised services, as well as about how the strong relationships built by AGNSS with royal colleges, patients and others will remain within the national Commissioning Board.
For me, the most important message is that some highly specialist services are needed for a small number of people with severe mental illness and learning disabilities which may meet, or nearly meet, existing criteria. New criteria for highly specialist services must ensure parity for these groups. Can the Minister assure the House that the new commissioning arrangements
for highly specialised services will indeed mind the gap for complex psychiatric conditions, including those affecting people with learning disabilities and deaf people, and that the skills that AGNSS has demonstrated, which are still needed to commission highly specialist services in the future, will be retained and further developed as suggested by the noble Baroness, Lady Jolly?
7.54 pm
Baroness Masham of Ilton: My Lords, I thank the noble Baroness, Lady Jolly, for this timely debate on AGNSS. There is no doubt in my mind that there are many really concerned and frustrated people who are involved in highly specialised conditions, be they patients, relatives or doctors treating them. With so much insecurity and with PCTs running down and the national Commissioning Board not operational yet, there is a limbo situation.
When a rare disease strikes, it is the individual who matters. The correct treatment is vital, but with rare conditions risks have to be taken if there are to be improvements. The Chief Medical Officer, Dame Sally Davies, has recently endorsed the value of research into rare diseases by the National Institute of Health Research as a significant source of benefit for patients with rare diseases. The role of AGNSS is to advise Ministers. Does the Minister think that the national Commissioning Board members will be infallible so that they will not need advisers? We have come to a shocking situation when staff in St George’s Hospital, a teaching hospital, neglected a patient of 22 who had suffered a rare condition, following a brain tumour, that required daily drugs. He died of thirst because staff failed to read his notes. Patients with rare conditions need extra-special treatment; they should not be neglected and ignored. What has gone wrong? We need transparency and confession and a fool-proof system for all vulnerable patients. When the Government say that everything is fine when it is not, it is a cover-up.
AGNSS is an independent advisory group providing advice to the Secretary of State for Health regarding the commissioning of services for very small populations of patients—fewer than 500 patients in England. Will the Minister make clear what the future of AGNSS is? To cover all specialised services adequately, the Commissioning Board will have a mammoth task.
I must declare an interest as I have a cousin aged six who has relapsed neuroblastoma. The treatment his parents are trying to access is likely to become available on a trial basis in the UK, but not in time for Jamie. It has been internationally recognised as being one of the most promising therapies with encouraging results against neuroblastoma. I think it is available in Germany. There are only about 100 patients a year in England with this aggressive type of child cancer. It desperately needs research. Parents will do anything for their children. This family is appealing to the North Yorkshire PCT.
I am president of the Spinal Injuries Association, which is concerned about tetraplegics and paraplegics who are not being admitted to spinal units. One case is still residing in St Mary’s, Paddington, on a respirator after a ski-ing accident. He has been waiting to go to
the spinal unit at Stanmore for months. This is not good. Correct specialised care means good quality for patients. The noble Earl is Minister for Quality. Does he agree that there should be a special fund for very rare cases so that they are not passed over? I, who have every admiration for our hard-working Minister, do not want the system to give him the reputation of being a Pontius Pilate. Even with AGNSS, there are improvements to be made. There is a black cloud hanging over the NHS: the £20 billion that has to be saved. With so many demands on healthcare, this challenge may just be too great.
7.59 pm
Baroness Thomas of Winchester: My Lords, I am grateful to my noble friend Lady Jolly for this debate. I do not have to declare an interest because, although I have a rare disease, I do not have an ultra-orphan disease. There will be a lot of repetition in what we are saying but perhaps the very fact that we all want the same thing will send a powerful message to the Government. That message has been particularly loud and clear from all the groups that have been lobbying us and are very worried about the future of the commissioning of services for these very small populations of patients with ultra-rare diseases. They all want a version of AGNSS to continue its invaluable work and they do not want its expertise and experience to be lost when the NHS Commissioning Board takes over the responsibility of commissioning specialised services.
It is something of an irony that as medical research finds more and more treatments for these ultra-rare diseases, and as improvements in diagnosis mean that more people will have a correct diagnosis and therefore potentially live longer because their condition can be treated, the actual drugs and therapies they need might be deemed unaffordable. That is why we need AGNSS more than ever at this point where research is at the forefront of the Health and Social Care Act. That Act now gives the Secretary of State, for the first time I believe, the duty to promote research in the NHS. This will inevitably mean that new therapies will be found for rare disorders. This should be great news, but will it be for the very small proportion of the population who have these ultra-rare conditions? Will they be denied access because of the high cost of treatment? The key question is what value-based pricing, due to be introduced in January 2014, will mean for high-cost low-volume drugs and whether these can be adequately assessed within a new value-based pricing framework.
The Department of Health says that the new system will give patients and clinicians greater access to clinically effective and cost-effective medicines. But experts are not convinced that the system will work without the AGNSS framework, particularly given the situation in Scotland where AGNSS does not operate. The last thing we want is to go back to the old days when people diagnosed with Pompe disease, for example—an ultra-rare but treatable neuromuscular condition which affects fewer than 100 people in England—were not always certain that enzyme replacement therapy would be licensed in England because NICE had to be satisfied that it would be cost-effective. Through the leadership of Sir Michael Rawlings, national commissioning of
such orphan drugs was transferred to an advisory body which later evolved into AGNSS, and the dreaded threat of a postcode lottery was removed.
In its short life, as we have already heard this evening, AGNSS has garnered high praise for its thorough evaluation process, which is seen to be open and transparent, using the uniform expertise to evaluate funding for service provision and therapies, thereby avoiding inefficient and artificial separation of commissioning for drugs and services. It is likely that this good practice has led to the UK being looked on favourably as a destination for pharmaceutical industry-sponsored clinical trials. Surely we all want this to continue and develop. Can the Minister say what the timescales are for confirming the future work of AGNSS and can he confirm that the Secretary of State for Health has the duty under the new Act to provide specialised services for all who need them, however rare their disease?
8.03 pm
Lord Walton of Detchant: My Lords, I too am deeply grateful to the noble Baroness, Lady Jolly, for initiating this important debate. I have been a long-time supporter of the Rare Disease UK consortium, now chaired by the man who recently was the director of the Genetic Interest Group. A recent editorial in the British Medical Journal in June said:
“Three million in the United Kingdom have a rare disease, defined in both Europe and the USA as a disease that affects fewer than one in 2000 people. It is well recognised that those with rare diseases face intrinsic inequalities in healthcare, and in response to a 2010 recommendation by the European Commission, the UK government, like other member states, agreed to produce a strategy for rare diseases by 2013”.
The Government at the moment are consulting on this very important topic.
Before I come to that I want to say a word about AGNSS, which has proved to be remarkably successful. It has been funded by top-slicing of funds—up to about £100 million a year—from primary care trusts across the UK and it has enabled companies such as Shire Pharmaceuticals to develop enzymatic treatments which have in fact been able to reverse diseases like those referred to by the noble Lords who spoke earlier about the various storage disorders. It has been able to control disease in people with Fabry disease, Hunter syndrome, Gaucher’s disease and others. It has been immensely successful and its future is therefore crucial. It is important that the Government recognise in the consultation process they are undertaking that the needs will increase as time goes by, because the developments in genetic medicine and molecular biology are revealing in many of these devastating and rare diseases single genes whose effects can be controlled to an extent by new forms of treatment. As time goes by, more and more orphan and ultra-orphan drugs to control these rare diseases are coming on stream.
One major concern about the proposals in the Government’s consultation document is that, while it contains proposals on diagnosis and services for rare diseases, policy and treatment is deflected to forthcoming proposals on value-based pricing. Value-based pricing is unlikely to be capable of dealing with medicines for orphan and ultra-orphan diseases because, after all, the number of patients affected by these conditions is
relatively small. The drugs that are being developed are going to be very expensive and they are not going to be commercially viable unless they are sponsored and subsidised by funds from an organisation like AGNSS. This is a crucial issue which I hope the Government will be able to deal with. At a recent meeting Sir David Nicholson suggested that it was probable that the functions of AGNSS would be taken over by the national Commissioning Board. I know no decision has yet been made but will the Government tell us what the prospects are, whether the responsibilities will be extended and whether funding for AGNSS is likely to be increased?
Finally, in the light of my own private research I want to mention a disease called Duchenne muscular dystrophy—a devastating disease of young boys causing progressive muscular paralysis. For the first time certain drugs are now coming on stream which have been shown by clinical trials to be effective in delaying the actual progression of this condition. These drugs are so-called molecular patches which overcome defects in the actual gene. This is a form of exon skipping. For these drugs to be effective, several different types of molecular patches may have to be developed. Speeding up that process for different mutations will be difficult but the safety issues are all the same. Can the Government give us an assurance as these molecular patches for this devastating disease become increasingly available that not every single patch is going to have to be tested and subject to regulatory control, and that regulation covering all these patches may be acceptable?
We are dealing with a very important group of diseases which cause immense human suffering. AGNSS, in some form or other, must continue and it must have its functions and, I believe, its funding increased.
8.09 pm
The Earl of Listowel: My Lords, with your Lordships’ consent, I will speak briefly in the gap on the issue of the mental health of families and children and on clinical standards for children and young people in care. My noble friend Lady Hollins raised important points in this area. I will give one further example. The NSPCC’s Young Abusers Project, run for many years by the eminent forensic psychiatrist Dr Eileen Vizard, deals with children who have abused other children. I am afraid there are significant numbers of those children but it is hard to get specialist services for them. In the past, Dr Vizard has explained to me how she has chased her PCT to get the money to provide this specialist service and has failed. The difficulty is that the service starts to treat a child whose behaviour begins to improve and he or she begins to get better. The local authority then whips the child out because the symptoms have gone. But if the service does not intervene effectively in childhood, a child can become an adult with similar problems. We really need to address such issues as regards children’s mental health.
The Cassel Hospital used to provide a service for very damaged families. It enabled mothers who perhaps had lost several children through being taken into care to keep their children because the hospital provided such good, specialist intervention for the mental health of those families. I would be grateful for the Minister’s assurance that the importance of the mental health of
families and children specialist services will be carried forward in the new dispensation. Perhaps the Minister could write to me on the clinical standards for young people in care. NICE is responsible for taking those forward. If we can get those right, we will need fewer specialist mental health services for children and families in the future. I look forward to the Minister’s response.
8.10 pm
Lord Hunt of Kings Heath: My Lords, I congratulate the noble Baroness, Lady Jolly, on giving us this welcome opportunity to discuss national specialised services. The points that she has made are significant both in terms of specialist services and also in terms of some of the vulnerabilities in the new architecture that we see being brought into the NHS.
One of the issues raised by the shifting of responsibility from Ministers to the NHS Commissioning Board is a concern that Parliament and parliamentarians will not have sufficient influence on the way in which specialist services will be developed. I too would like to acknowledge the work of AGNSS and express our wish to see it continued. I thought that my noble friend Lord Turnberg put it very well. It is important that Ministers continue to receive the advice of this body in the new arrangements. It seems to me that the arguments being put forward by every noble Lord on this matter are persuasive.
I also wonder about the advice that the NHS Commissioning Board is to receive. As I see it, there is a two-stage process. First, there has to be a decision on which services are to be so designated, which will be a subject for Ministers and will have to be done through regulations. I am quite clear that AGNSS has a role to play. Secondly, if there are services to be commissioned, how are they to be commissioned and how much is to be commissioned? Again, I wonder whether AGNSS could play a role in advising the national Commissioning Board. I do not know whether the noble Earl would be prepared to comment on that specific point, which is rather separate from that which we have debated so far on advice to Ministers.
Can the Minister also comment on regional specialist services? Again, we have not really discussed that but, in the past, there has been a mechanism for commissioning at the regional level. Can he say how he thinks that that might be done? Of course, it is possible that the local offices of the national Commissioning Board might do it with the advice of some kind of advisory service. I encourage the noble Earl to go down that route. I really hope that the answer is not that clinical commissioning groups will federate together to commission regional specialist services. Frankly, that will not happen. I would have no confidence whatever in clinical commissioning groups collectively seeing the wisdom of commissioning regional services. At the local level, there has to be leadership. I can see it coming only from the office of the national Commissioning Board. I think that with an AGNSS approach at that level, alongside an ability of the commissioning board at what we call the local level, but which with 28 offices really is at a semi-regional level, there will be scope for that to happen.
The noble Lord, Lord Palmer, raised the issue of postcode prescribing. If too much is devolved to clinical commissioning groups in relation to specialist services,
that is almost inevitable. From the action taken recently by a number of primary care trusts, we have seen that they are only too willing to restrict services. The North Yorkshire primary care trust seems to be in the spotlight and to be making some bizarre decisions. It has sought to describe treatment, which is well recognised nationally and internationally, as innovative and almost not proven. The noble Lord, Lord Walton, raised this issue yesterday. I would worry if clinical commissioning groups were given too much discretion in this area.
Finally, I turn to budgets and how much money is to be top-sliced. I gently say to the noble Earl, Lord Howe, that Ministers seem to be in denial about the financial pressures facing the health service at the moment. Recently, I had meetings with the Royal College of Nursing and the Royal College of Physicians. They confirmed my view that the NHS is under extreme pressure, the problem being that primary care—the most vulnerable and most patchy bit of the health service—simply is not stepping up to the plate in terms of demand management or developing the services that were meant to keep people out of hospital. Given that, the acute sector is under huge pressure, and my worry is that the national Commissioning Board will be very reluctant to top-slice sufficient resources in relation to specialist services.
In reminding the House of my health interest, as I should have done at the beginning of my speech, I would be very grateful if the noble Earl could say a little about how resources are to be protected for specialised services in a very strained financial position.
8.16 pm
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, perhaps I may begin by congratulating my noble friend Lady Jolly on securing this short debate on the future of the Advisory Group for National Specialised Services. This is undoubtedly an important area for discussion, not only for the members of the advisory group who have worked hard to provide Ministers with advice but for patients and families who have benefitted from the national commissioning on which it leads.
At the outset I would like to say, in particular to my noble friend Lord Palmer and the noble Baroness, Lady Hollins, that in working up plans for the reform of the NHS, we absolutely recognised the needs of people with very rare and rare conditions. We wanted to make sure that we honoured the commitment in the NHS constitution that no one should be “left behind” because of the rarity of their condition. For these reasons, the legislation reflected our view that specialised and highly specialised services were best commissioned at a national level. Services will be set out in regulations, making it very clear what we are expecting the Commissioning Board to directly commission. I can assure my noble friend Lord Palmer that patients with rare conditions, depending of course on their clinical needs, will continue to have access to specialised services and expert treatment. I would say to the noble Baroness, Lady Masham, that the NHS Commissioning Board will retain money centrally to directly commission these services, including services for very rare conditions.
When the coalition Government were formed in 2010 we endorsed the previous Government’s proposal and established AGNSS as an independent stakeholder advisory group, bringing advice and funding together into one body. We also gave AGNSS the specific role of considering whether certain very high-cost, low-volume drugs should be included in the national arrangements for specialised commissioning. In developing this role, AGNSS worked very closely with NICE and developed its own decision-making system.
Under the Health and Social Care Act 2012, this situation will change from April 2013. Instead of highly specialised services being commissioned nationally by the National Specialised Commissioning Team and specialised services being commissioned on a regional basis by specialised commissioning groups, the new NHS Commissioning Board will take responsibility for commissioning all these services. That will all be under a national commissioning policy which will be sensitive to local requirements so that the needs of people with rare and very rare conditions are met.
Ministers will still be responsible for deciding what services the board should be asked to commission, but it will be the responsibility of the board to decide how it commissions those services. The functions of AGNSS cut across both the “what” and the “how” so I do not see a role for AGNSS in its current form from April 2013 and it will cease to be an advisory group offering advice to Ministers.
I would like to set out the current functions of AGNSS and consider in turn where each would sit in the future. The first function of AGNSS is to advise Ministers on which highly specialised services, products and health technologies should be nationally commissioned. That will be expanded to cover all specialised services and not just the highly specialised. Ministers will need to receive advice on whether services can be defined by the rarity of the condition, the cost of providing the service or facility, the number of centres able to provide the treatment, and financial implications for clinical commissioning groups. We are currently considering an appropriate advisory mechanism for Ministers that will keep the list of services directly commissioned by the board under review, ensuring that services are commissioned at the right level. In time, some services might be more appropriately commissioned by clinical commissioning groups, but I emphasise the words “in time”.
The second function of AGNSS is to advise Ministers on which centres should be designated providers for nationally commissioned services. In the new reformed NHS, this is rightly the role of the Commissioning Board in carrying out its commissioning of services. It is no longer for Ministers to decide upon. Therefore, advice to Ministers is no longer required. The same is true for the third function of AGNSS: advising on the annual budget for new and existing nationally commissioned services and the contribution required from PCTs. The fourth function is to advise on funding of the management function of the NSCT as hosted by NHS London. That will no longer be needed. The Commissioning Board will manage one single specialised services budget and commissioning function. So, again, Ministers would no longer need that advice, and it will be a matter for the Commissioning Board.
Whether commissioning a cataract operation or the most highly specialised and long-term treatment, the most important thing is quality of care. We must prioritise good-quality clinical advice on highly specialised services over the structure of a group for its own sake. Work on developing an advisory mechanism for the board on highly specialised services is ongoing. The chair of AGNSS, Professor Michael Arthur, is working with the NHS Commissioning Board Authority on such an advisory mechanism that would build on the skills and expertise of current arrangements. Within the board, there will be a clear focus on specialised services, organised around programmes of care to make sure that services are always top-notch. Commissioning teams will make sure that contracts with providers reflect the needs of people with rare and very rare conditions. On top of that, there will be specific links to innovation, including a specialised services innovation fund. The board will also manage stakeholder engagement.
I mentioned one important aspect of the work of AGNSS, in assessing very high-cost, low-volume drugs, but so far I have not explained where this function will sit in the new system. We have looked at several potential options. I am pleased to announce that, on the basis of a detailed proposal and discussions, we have asked NICE to take on the assessment of very high-cost, low-volume drugs from April 2013. I am aware that some noble Lords may have concerns about NICE taking over this work, as the current cost per quality-adjusted life year that NICE operates for its appraisals of drugs would rule out highly expensive drugs for small numbers of people with rare conditions. We have explored this issue thoroughly with NICE and it has developed a process for assessing such drugs. It will build on the decision-making framework that AGNSS uses at the moment. That framework balances health gain, best clinical practice, societal value and reasonable cost. In addition, recommendations from NICE will not be based solely on a cost per QALY figure.
NICE proposes setting up a dedicated expert panel to produce an assessment of a new drug, usually within six months. Given that we wish the new process to commence in April 2013, NICE will develop interim methods for the first few assessments. The institute plans to subject these processes and methods to a consultation in 2013-14 alongside the assessments it will carry out. NICE’s work will make sure that we have a robust, transparent and consistent process in place for assessing very high-cost, low-volume drugs. We have a number of points of detail that Department of Health officials are still exploring with the institute. I will be able to say more about the detail of this proposal in the coming weeks, but, in the mean time, I thought it important to provide a progress report to the House.
The noble Lord, Lord Turnberg, asked about the mandate. I can tell him that the consultation on the draft mandate, which was launched on 4 July and on which we welcome views and comments, emphasises the importance of driving improvements in the £20 billion- worth of services commissioned directly by the board, including specialised services for people with rare or very rare conditions. One of our proposed objectives in the draft mandate asks the board to put in place
arrangements to demonstrate transparently that these services are of high quality and represent value for money.
The noble Lord, Lord Hunt, expressed his dissatisfaction that, as he sees it, Parliament will not have a say in which services are commissioned by the NHS Commissioning Board. The consultation on the mandate provides Parliament and, indeed, others with the opportunity to express views on that matter. I would also reassure the noble Lord, Lord Turnberg, and my noble friend Lord Palmer that within the board there will be a clear focus on specialised services, including experts on highly specialised services, organised around programmes of care and with a national commissioning policy for specialised services that is sensitive to local needs, as I mentioned. Clinical leadership will be the responsibility of Professor Sir Bruce Keogh and advisory mechanisms to the board are being developed. Within 10 of the 27 local area teams of the board, there will be expertise in highly specialised services.
The noble Earl, Lord Listowel, asked about children with specialist mental health issues and whether they would have access to appropriate treatment. I can give the assurance that such services will be available once the board is responsible for commissioning them. Specialised services relating to mental health was the theme taken up by the noble Baroness, Lady Hollins. We are not yet in a position to announce the full list of the services that the board will be commissioning. However, a great deal of work has been going on to draw up that list. The chairs of 60 clinical reference groups have been working on the matter. They are all leading clinicians in their fields. The CRGs hold a broad membership and an assurance process was established that looked at the work of the CRGs. The findings of the CRGs were considered by the CAG in May of this year and Ministers expect to set out the list of services over the summer.
In answer to the noble Baroness, Lady Masham, I am of course very sorry to hear about the child she mentioned who has neuroblastoma. Obviously, for reasons of patient confidentiality, it is not appropriate to comment on individual cases. At the moment the decision for funding treatments for neuroblastoma rests with PCTs. In the future, commissioning decisions for patients with rare conditions will, as I have mentioned, rest with the board. I cannot say definitely whether that will be one, but the noble Baroness may like to draw her own conclusions. I am informed that the evidence base for stem cell-based therapy for neuroblastoma is not yet sufficiently robust despite the comments she made.
The noble Lord, Lord Walton, asked for an assurance that molecular patches will not be subject to constant regular testing. Molecular patches that are found to be safe by the regulatory process can be used on the NHS. My noble friend Lady Thomas spoke eloquently about research. She is absolutely right in the importance she attaches to that. The Government will invest £800 million over five years from April this year in NIHR biomedical research centres and units. Most of these centres are conducting leading-edge research on rare diseases that will benefit patients with these conditions. The NIHR
has joined the International Rare Diseases Research Consortium and is actively involved in pursuing the consortium’s goals.
Time is now against me. I beg leave to write to noble Lords who asked me questions that I have not had time to answer. Once again, I express my gratitude to my noble friend for raising this important subject.
Financial Services Bill
Committee (4th Day) (Continued)
8.30 pm
107A: Clause 5, page 17, line 5, at end insert—
“( ) the way in which a financial product or opportunity is drawn to the attention of or otherwise made available to members of the public;
( ) the ways in which the provider of a financial product or service derives revenue therefrom, and the way that this is disclosed to the purchaser;”
Lord Lucas: My Lords, both segments of the amendment are in effect questions that ask my noble friend where he envisages that the limits of the FCA’s powers will lie in dealing with what I perceive to be a couple of current problems. The first part of the amendment is aimed at things such as tropical forestry investment. One finds full-page advertisements in supplements, in particular in the Guardian but doubtless in other places. Presumably, advertisers think that Guardian readers are notable suckers for green investment. The advertisements promise rates of return varying from 18% to 22% per annum over a period of 15 years, and are backed up by a remarkable lack of financial information of any kind—just lots of happy pictures of growing trees and talk about the value of the eventual timber and the many uses for it, about the unspecified rise in the market price of timber, and so on. As far as I can make out, they are complete scams. I investigated one of them in as much detail as I could—which turned out not to be very much, because not much was forthcoming.
The schemes escape FSA regulation because they are not considered to be collective investment schemes. Although they involve a collection of people pursuing a single investment objective—which is the way the scheme manager makes money—they are not collective in the sense that at their root is individual ownership of a separate plot of trees, land in the UK, wine or another similar separable asset. Therefore, the FSA currently is unable to regulate them.
Thanks to my noble friend, I had very helpful conversations on this matter with his department, where officials said that the tack that I was originally pursuing might lead to the FCA having all sorts of jurisdiction over arrangements that were essentially private, such as arrangements between consenting adults
to do something that might or might not be to their advantage but which the FCA would have no business regulating. Therefore, I attempted to reapply myself to what must be—from the frequency and scale of the advertisements—a large-scale fraud by now, and attach myself to the concept that if something is widely advertised as a consumer investment it is something to which the FCA should be able to pay attention. That is a reasonable way of separating large-scale public frauds from minor arrangements that should be outwith the ambit of the FCA.
The second part of the amendment deals with the fees or benefits that accrue to managers of investments. I will take as a particular example stock lending fees. Over a long period the FSA has been unable to make managers declare their full benefits from managing funds. The level of fees in this country is far too high anyway. Managers take far too large a proportion of the total return. Noble Lords may have heard the Danes on the radio this morning, threatening to bring low-cost investment management to the UK. Good luck to them; I hope that they will be permitted to do so. However, we ought also to pay attention to our own business, and to making sure that, where a firm says that it charges 1.5%, that is what it will charge, and that it will not indulge in something that is essentially a risky practice and take all the benefit from it without telling its clients that that is what it is doing.
There are a number of ways in which the City has derived benefit from the investment management process. One that particularly gets my goat is high-frequency trading, which is robbery by any other name. People get a preferential supply of information about trades and are able to surf the wave of real investors’ trades. Every penny that they make is at the expense of real investors—in other words, our pensions. The only reason we tolerate it is that they are doing this to foreigners as well, so we are making more money out of it than we are losing. That is not a healthy way to go on. We should have an open and transparent arrangement for saying how money is earned in the City, and it should be clear to people who are investing exactly what bite the managers and others in the City are taking out of a scheme, so that they can make a reasonable judgment on whether this is the right place to invest or whether they should take their money off to somewhere where they will be allowed a higher share of the total return. I beg to move.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, I am grateful to my noble friend for bringing up these important matters. As he knows, they are not easily dealt with. I will say a few things about where we are. I will not dwell too much on the specifics of the amendment because, as he said, his intention is to provoke a discussion around some of these topics rather than around the specific drafting.
The difficulty around these unregulated activities and schemes is that a line must be drawn between regulated and unregulated activities. Around the margin, wherever the line is drawn, there will always be incentives for rogues to exploit the boundary. This may well be what people are doing on some of the schemes to which he referred—I do not want to express a view. The first thing that we need to recognise is that a line
has to be drawn between regulated and unregulated activities. For example, we would not want to draw the regulatory net so wide that it would capture investments in a family farming business or investments by family and friends in a small start-up business—the sort of activity that as a Government and as a House we very much encourage.
Once one accepts that there will be investment schemes that involve a number of people that we do not want to capture in the regulatory net, there will always be a borderline, and I fear that there will also be people who seek to exploit it. It certainly appears that the schemes that my noble friend referred to were structured specifically to avoid being captured in regulations. That means that the regulator cannot act unless either the schemes fall into the regulatory net, or the promoters of the schemes hold themselves out to be regulated. Some fall into the trap of holding themselves out to be authorised and regulated, and then they can be caught. However, the majority do not. I do not think we can simply or easily change the definition of a collective investment scheme in Section 235 of FiSMA to address the point, because either the boundary will shift somewhere else, or we will capture the sorts of legitimate activity that I have referred to.
What my noble friend Lord Lucas usefully draws attention to is the role of the FSA at present, and that of the FCA in future, which is to think very hard about the preventive consumer education work that is needed to warn the public about the risks of these unauthorised schemes. The fact that my noble friend regularly comes back to them undoubtedly helps to raise that awareness. On the other side, the regulator, whether it is the FSA or the FCA, will also work with the police, trading standards, and the Insolvency Service in this space to do whatever they can. However, I appreciate that unregulated activities will be nigh on impossible to stamp out altogether. I am sorry, but it is no great surprise that I cannot give my noble friend Lord Lucas a complete answer on that.
On fund management fees, the main point is to give my noble friend reassurance that there is a substantial regime in place through the FSA’s rulebook regarding the disclosure of investment management fees. There is a lot of debate and discussion in this area at the moment. The fact that it was discussed on Radio 4 this morning shows that this is becoming an issue which is getting a lot of exposure, which must be a good thing in terms of making investors aware of how much of their capital can disappear through regular compounding of fees. Whether the fee levels in the UK are particularly high or not, compared to other jurisdictions, is clearly not a straightforward matter but is another dimension of this which has been referred to. Ultimately I suggest that these issues are not matters for the Bill beyond the fact that I am sure that the FCA will have all the powers necessary in this area. It is an area in which awareness-raising of the sort which my noble friend is engaged in will focus the regulators to use the powers that they have. I am grateful to him for raising these points, but I ask him to withdraw his amendment.
Lord Lucas: My Lords, of course, I am grateful to my noble friend for his reply, although I do not share his optimism as to the number of people listening. As
far as advertisements are concerned I can see I have lost that argument, and we will wait until some crisis arises and events force the Government’s hand. There we are. People should have been more careful with their money; they should have known that 20% compound for 15 years was probably not safe.
So far as investment management is concerned, I think we have been doing some useful things in these last few years in paying real attention to fees, to executive remuneration, and to other ways in which the return to capital is being eroded and the way in which that is costing us all in terms of pensions, support for pensioners and the health of the economy. I hope we continue to make progress. I shall certainly take an interest in the way the FCA asks for disclosure in this area. However, for the moment I thank my noble friend and beg leave to withdraw the amendment.
8.45 pm
108: Clause 5, page 17, line 7, at end insert—
“(h) where credit is granted to a consumer, a clear statement, in cash terms, of the total cost of such credit”
Lord Borrie:My Lords, this amendment stands in my name and that of the noble Baroness, Lady Oppenheim-Barnes, whom I am delighted to have supporting it. She was Minister for Consumer Affairs in the early years of the Thatcher Government and is a lady of tremendous knowledge and ability in this field. I will also speak on Amendment 197ZA which, rather surprisingly, is grouped with these other amendments. I will come to that in a moment.
The Financial Conduct Authority is taking over the responsibilities that are currently with the OFT in dealing with consumer credit. It is important that the Bill maintains and ensures long-term protection for consumers in future consumer credit transactions. One problem is that it is often very difficult for consumers to compare one loan, for example a pay-day loan, with another on a like-for-like basis. Indeed, it is quite difficult for people to know what the costs are of a particular loan that is granted to them. The amendment proposes that the total cost of credit “in cash terms”—I emphasise that—is quoted to the consumer whenever credit terms are granted.
As I understand it, in pay-day loans there are two elements to charges. One is the core charge or interest charges. The other comprises any other mandatory charges, such as transfer or set-up fees, that may be exacted by the creditor. It is vital to my mind that the cost of credit described includes all unavoidable charges. Those which are not discretionary but mandatory should all be disclosed, and the disclosure should be in cash terms because even the most disadvantaged debtor—even someone with less financial knowledge than others—understands cash terms. The pound sign means something, whereas the percentage sign does not. I know that the noble Baroness, Lady Oppenheim-Barnes, wishes to refer to this matter in a moment.
As I indicated, I shall speak also to Amendment 197ZA in this group. To my mind, this is almost a separate topic because it deals with plans involving arrangements managed by a debt management company that is negotiating with creditors to reschedule a debtor’s repayment of debts. As we know, there are some charitable schemes; for example, that run by the Consumer Credit Counselling Service, whose chairman, my noble friend Lord Stevenson, sits on the Opposition Front Bench. It does a tremendous amount of work and does not exact fees from the debtor, as it is a charitable organisation. Other schemes are financed sometimes by contributions from creditors but, as we have already heard in earlier debates, there are unfortunately huge numbers of debtors owing huge amounts of debt. There is a great need for them to have properly approved and fair debt management schemes and plans to enable them to start afresh, having had their debts rescheduled and paid off.
There is a practical need for commercially operated schemes to work as well as the Consumer Credit Counselling Service and other schemes to which I have referred do. The need for commercially operated schemes to exist requires that the debtor pays fees. Unfortunately, as has also come out in today’s discussions, the OFT has found, in a fairly recent review of 2010, that there have been a great many abuses in the system, including misleading advertising and excessive fees exacted by debt management companies. The OFT has used formal powers to revoke the consumer credit licences of various debt management companies but, to my mind, debt management companies that are run properly and fairly on a commercial basis are needed for debtors and in the consumers’ interests.
The nub of my amendment is that in 2007, under the previous Government, the Tribunals, Courts and Enforcement Act provided for debt management plans to be put in place, as approved by the Lord Chancellor, while in 2009—again, before the change of government—Ministry of Justice lawyers said that any implementation of such powers to approve schemes would require the provision of some form of profit element for this to be effective. These Ministry of Justice lawyers, whose opinion I have seen, thought that the present wording of Section 124 of the 2007 Act was defective because it allowed debt management scheme operators to recover only costs actually incurred; for example, staff and accommodation costs—out-of-pocket expenses, as it were. The 2007 Act does not allow for any specific profit element to be charged, yet surely, as long as the profit element is reasonable and there is nothing unfair in it to the debtor, it ought to be allowed. My amendment allows such a profit element, provided it satisfies the Lord Chancellor before he approves any debt management plan.
This is a practical and useful amendment to bring the relevant provision into line with what had been intended, as I understand it. Fair debt management plans are needed for the large numbers that, sadly, exist of multiple debtors. Given the level of need for such plans, it is not only not-for-profit organisations that should be allowed to offer debt management solutions. As Ministry of Justice lawyers have said, the problem of the defective drafting of the current law in
Section 124 of the 2007 Act can be addressed only by way of an amendment to Section 124 to provide for a profit element. That is what my amendment seeks to do and I trust it will find acceptance with the present Government.
Baroness Oppenheim-Barnes: My Lords, I was very grateful to the noble Lord, Lord Borrie, for tabling this amendment. It is something that I have been passionately concerned about for many years. I am possibly the most innumerate person in your Lordships’ House. I say so on an occasion when we had speaking in our earlier debate the noble Lord, Lord May, who is one of the premier mathematicians in the world. I am very glad that he is not here at this moment.
I have been desperately concerned about the presentation of the costs of credit for any consumer at any level. When the first regulations came out, following the two Consumer Credit Acts, they were a long time coming and were very detailed. They were drafted by someone in a little office at the top of the Department of Trade and Industry and they came down very slowly. Just as I was leaving, down came the regulations for AER and APR. I took one look and said, “No—not possible. I cannot make head nor tail of this.” They were too polite to say to me, “Well, most people could, and you can’t”, so I put it to the test. This afternoon, before coming into the Chamber, I asked 20 different Members of your Lordships’ House if they knew what AER or APR stood for. None of them knew—and one of them, who is not here at present, actually moved an amendment.
When this amendment was coming up I started to look a little more deeply at what had happened since those regulations were passed, after my time there. I came across the information that we have in fact had two draft directives from the EU, which are very precise. The 2008 directive, in order to inform consumers, gives us a basic equation in numerical form. It has a big E, a big C, a little k, a bracket, 1 plus a cross, minus a little 4, equals another big E, with an M over it, and a little l equals 1, then a D1, a bracket, another 1 plus a cross, squared. That is the formula in the EU directive of 2008. There is an explanation. It says it is,
“where … X is the APR … m is the number of the last drawdown, k is the number of a drawdown”—
“Ck is the amount of drawdown k”—
I will not go on. There are at least four more lines like that.
We have been observing that particular formula in this country since that directive but there was a new directive in 2011, which is presumed to help with what has been decided, since 2008, was too difficult a problem for most consumers. It says:
“The experience gathered by Member States with the implementation of”,
“has shown that the assumptions set out in … that Directive do not suffice”,
et cetera. They have watered it down somewhat but it is not going to come into force until January 2013, so at the moment we still have the formula that I quoted to your Lordships.
I really think that my noble friend Lord Sassoon will welcome the opportunity to accept this amendment. It is so simple and prescriptive. It is not general, like any of the other amendments. When you think of all the difficulties that people have with credit these days, even if they are more numerate than I am, then to give them the information in simple figures about how much it will cost them if they pay on time—that must always be made clear—and how much if they do not must be very attractive to any Government, or to anybody concerned with the problems facing consumers in this area today. It is simple and it is cheap. I beg my noble friend to give me some encouragement.
9 pm
Lord Flight: My Lords, the noble Lord, Lord Borrie, pointed out that this chapter addresses the transfer of the regulation of consumer and small business finance from the Office of Fair Trading to the new FCA. My two amendments, Amendments 118D and 147K, address a specific point: the suggestion that the regulation of claims management companies might be transferred from the Ministry of Justice to the FCA, on the grounds that this area has attracted quite a lot of complaint.
I also wanted to make the point that, as the Minister will be aware, the industry is slightly concerned that the re-drafting of all the arrangements that presently operate through the CCA regime to come under financial regulation and to end up in an FCA rulebook is a pretty monumental task. It is questionable whether that can all be accomplished with due care to become operative by April 2014. Therefore, might it be wise and/or possible for at least some of the CCA activities to be able to continue beyond April 2014, allowing sufficient time for consultation and for rewriting everything into what is required as a new format? Apart from anything else, there is some £50 billion worth of lending finance to very small businesses, which are substantially one-man operations and represent a few million businesses. It is really quite an important commercial area, and it is important that things do not get through by mistake in the re-drafting that could cause problems.
Lord Stevenson of Balmacara: My Lords, my noble friend Lord Borrie kindly drew the Committee’s attention to my position as chair of the Consumer Credit Counselling Service and I declare my interest again. I would also like to thank him very much for his kind remarks about the work of the charity, which does so much for people who have unmanageable debt.
This is a wide-ranging group of amendments in the sense of issues that have been raised. I will focus on two areas: the claims management area and the debt management space. Claims management companies have increased in number and have come to the attention of the public, and the industries in which they operate, much more in recent years. You have only to turn on the TV or listen to the radio to be bombarded with advertisements from claims management companies. E-mail traffic is also increasing.
There are apparently more than 3,200 authorised firms operating today. Of course, many in the claims management industry act responsibly. The part of the
industry that does not adhere to best practice breaches guidelines on cold calling, text messaging and e-mails. Some will take up-front fees and/or fail to disclose properly the amount of compensation that a consumer will pay if their claim is successful. Through high-pressure sales they will sign up people who have no possibility of making a successful claim on the basis that they can get you thousands of pounds in compensation.