I turn to the noble Lord’s amendment and the question of reverse burden of proof. The Government are committed to introducing regulation that is robust but it must also be proportionate and, as far as possible, create a level playing field to support competition. These characteristics are vital for putting downwards pressure on costs to consumers and supporting innovation to help maintain a vibrant, creative, globally competitive industry. The extension of the regime changes the parameters of the debate around the appropriateness of the reverse burden of proof. I shall explain why. As we have discussed previously, the reverse burden of proof is causing banking sector firms and their senior managers to focus on ways of limiting their personal liability should things go wrong.

As Andrew Bailey has testified to the Treasury Select Committee, a tick-box form of compliance is emerging which fundamentally undermines the judgment-led, responsible management that the senior managers

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regime is designed to support. As well as being an undesirable outcome of itself, these efforts could blunt the effectiveness of the reverse burden of proof as an enforcement tool in relation to the largest, best-resourced firms. By contrast, the vast majority of firms that will now fall within the SM&CR will be small ones. These firms are less likely to have legal resources to devote to protecting their senior executives. There is, therefore, a significant risk that smaller firms could struggle to fill their senior management posts—an issue that has been raised by representatives of some of these small firms. For example, Robin Fieth, chief executive of the Building Societies Association, said last December:

“A continued supply of high quality people is what financial services needs, but I can foresee recruitment issues resulting from the Senior Managers and Certification regimes. It’s a real risk that the pool of high quality individuals willing to take on a Senior Management Function role (SMF) in particular will drop. This will be particularly acute for smaller firms where the penalties are the same but the rewards substantially less”.

This could in turn undermine the Government’s aim to deliver a level playing field wherever possible and adversely affect competition in the industry. The ability of small firms to enter the market is key to driving innovation and putting downward pressure on costs.

Some noble Lords, including the right reverend Prelate the Bishop of Southwark, have expressed concerns about the fairness of reversing the principle that a person is innocent until proven guilty. While there are cases, as the assiduous noble Lord, Lord Sharkey, pointed out, it is unusual in English law. However, even setting these arguments to one side, there remain questions of fairness around the effect on small firms. Perversely, individuals in those firms, where regulatory breaches can cause the least damage, could end up being most exposed to personal liability. The noble Lord accepts this and his amendment would not apply the reverse burden of proof beyond the current population of firms covered by the SM&CR, but it would seek to keep it in place for deposit takers and PRA-regulated investment firms. This also raises issues of fairness. The reverse burden of proof the noble Lord wishes to preserve applies to all deposit-taking institutions, including credit unions and small building societies. If it remained in place for small deposit-taking firms, it would be hard to justify applying the reverse burden on these small firms but not on small firms in other sectors.

Furthermore, the arguments put forward by noble Lords who support a two-tier system are focused on financial stability and the risk that deposit takers and the large investment firms pose to it. However, the reverse burden of proof cannot discriminate between regulatory breaches that threaten financial stability and others. Therefore, its application to deposit takers and not to other firms is arbitrary and would pose serious risks to fair competition within the industry. The risks again would fall mainly on small firms. How easy would it be for a small deposit taker to attract high-quality senior staff in competition with a large insurer or FCA-regulated investment firm where, as well as being able to offer a higher salary, the reverse burden of proof would not apply?

The question the noble Lord’s amendment begs is: where should the line be drawn between those firms to which the reverse burden of proof would apply and those to which it would not apply? This is an extremely

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difficult question to answer in any way that would deliver a consistent and proportionate regime. As the right reverend Prelate said, it may well be arbitrary. Furthermore, how would enforcement action tackle activity that straddled a period when the firm moved above or below the threshold?

The intent behind this amendment is one we all share—to create a financial services sector in which people are held accountable for their actions. Much has already been done to achieve that. This Bill, as it stands, will improve transparency and accountability still further. This amendment, however, would add confusion and bureaucracy for no benefit. I therefore ask the noble Lord to withdraw his amendment.

Lord Sharkey: I thank all noble Lords who have spoken in this debate. It has been a very good one. It is clear that there is a strong division of opinion on both the desirability of a two-tier system and the reverse burden of proof regime. As the Minister said, these issues are both absolutely central to the regulation of our financial services industry.

It still seems to me that Parliament was right the first time. After a thorough and comprehensive investigation, it was right to put the reverse burden of proof regime into law. It was right to conclude that, if we did not do that, we would remain unable to hold senior managers effectively to account.

We have two categories of financial service organisations—those that constitute, or may pose, a threat to our financial stability and those who cannot pose such a threat. I agree with the Minister that we need a proportionate regulation and that what is proportionate for one of these categories is not proportionate for the other. I accept the difficulty in drawing the line. However, I remind the Minister that we have already drawn the line. The previous Act drew a very clear line. I do not think that we have resolved anything today but it was good to have the arguments in play. I look forward to discussing this issue further on Report under, of course, Committee stage rules. I beg leave to withdraw the amendment.

Amendment 21 withdrawn.

Clause 18 agreed.

Schedule 4 agreed.

Clause 19 agreed.

House resumed. Committee to begin again not before 3.10 pm.

Bilateral Trade: United Kingdom and Africa

Question for Short Debate

2.10 pm

Asked by Lord Sheikh

To ask Her Majesty’s Government what plans they have to encourage more bilateral trade between the United Kingdom and African countries.

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The Earl of Courtown (Con): My Lords, I take this opportunity to remind the House that this is strictly a 60-minute debate and apart from my noble friend Lord Sheikh, who will have 10 minutes, and my noble friend Lord Maude of Horsham, who will have 12 minutes, noble Lords are restricted to four minutes per speech. Once the counter is on four, noble Lords have had their time.

Lord Sheikh (Con): My Lords, I am grateful for the opportunity to bring this important subject before your Lordships’ House, and thank all noble Lords who are taking part in this debate.

The African continent holds a very special place in my heart. I was born in Kenya and spent my formative years in Uganda. During my lifetime I have travelled to many African countries in both a personal and a professional context. I have spoken to many African politicians and businessmen, and attended meetings and conferences. I enjoy good relationships with several African ambassadors and high commissioners. I have learnt much about what Africa has to offer.

I have spoken previously in your Lordships’ House about the need to promote more business between the United Kingdom and overseas countries—an issue that is indeed very relevant to African countries. We must focus on fast-growing emerging economies and those that have yet to be tapped. This is important, not least at a time when we are still finishing the job of rebuilding our own economy.

My involvement with Africa stretches beyond your Lordships’ House. Recently I spoke at an event for the Southern African Development Community, and hosted and spoke at an event for the Economic Community of West African States. I also recently made a keynote speech at a major conference on trade with Uganda. More personally, I have met businessmen who are seeking to further trade between the UK and Ghana, including the King of the Ashanti region in Ghana. I was also given a lifetime achievement award by the Association for African Owned Enterprises for my involvement in trade with Africa. Later on today I am hosting and chairing a conference on trade with countries in the Central African Economic and Monetary Community. About four weeks ago, I spent several days in Ethiopia investigating business and investment opportunities in that country.

My engagements continue to reinforce what I have always known. As a continent, Africa is thriving, and its outlook is extremely impressive. Its GDP is expected to grow by 4.5% this year and 5% next year. It is widely predicted that Africa could account for 7% of the global economy by 2040. However, as impressive as this is, we must not fall into the trap of looking at Africa as merely a bloc. It is in fact a rich and diverse region of 54 countries, offering a variety of cultures, languages and histories. From a trading point of view, this means a whole host of varying economies, businesses and Governments with which we can engage. Many different African states are currently or have recently been members of the much-admired “7% club”. Last year, Ethiopia, the Democratic Republic of Congo, Ivory Coast, Mozambique, Chad, Mali, Tanzania and Rwanda all achieved growth of 7% or more.

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I believe that the tendency to view Africa as an “all-in-one” model is a major challenge that businesses must look to overcome. There are many specific opportunities in different parts of the continent. I will cite examples from my recent trip to Ethiopia. Ethiopia’s economy has grown by 10.9% per year, on average, over the past decade. I was told of investment opportunities in a number of industries, including agriculture, fishing, mining and, perhaps most notably, infrastructure and construction projects.

There are opportunities in various sectors in different parts of Africa. We should be doing all we can to help our businesses identify and take advantage of these openings. I am aware of the high-value opportunities programme offered by UKTI, which seeks to provide assistance in this respect. Many projects and contracts are very large, and wide in scope; it is important that businesses be able to find specific areas to which their operations are suited. Can the Minister clarify what success this programme has had regarding opportunities in African countries, and whether it provides specialist support for smaller businesses?

We must not underestimate the market for Islamic financial products in many African countries. The UK has the largest Islamic finance industry outside the Muslim world. I am heavily involved in the maintenance and promotion of Islamic finance. I have co-chaired the All-Party Parliamentary Group on Islamic Finance, which is now being re-formed. I also serve as a patron of the Islamic Finance Council. The council recently held an international conference on Islamic finance in Edinburgh, during which I shared a platform with the Emir of Kano in Nigeria. The council has delivered key projects in Nigeria and Kenya. Ethiopia has shown an interest in Islamic finance, which we are pursuing.

On finance for business services, I am pleased that London is a major centre for the provision of funds for overseas investments. This includes British and foreign banks based here. The World Bank lists Benin, Togo, Ivory Coast, Senegal and the DRC as among the most improved economies for ease of doing business.

Much progress has also been made in relation to democracy in the continent. Approximately half the African nations have ratified the African Charter on Democracy, Governance and Elections. Similarly, approximately half have also ratified the African Charter on Human and Peoples’ Rights. These countries are changing, and there should not be the same stigma attached to doing business with them as there once was.

I believe that we can play our part in making it easier to do business by smoothing out our visa regime. I am told that there have been some problems, but I hope the Government will undertake to make our visa regime more accommodating towards building business relationships. Perhaps my noble friend the Minister would like to comment on the question of visas.

Ultimately, we should look to increase the frequency of delegations and trade missions. We must maximise the potential of deploying experienced trade envoys to seek out new opportunities. The main business meeting I had in Ethiopia involved the British Council and DfID, as well as the person dealing with commercial

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matters at the embassy. Such a cross-party approach was refreshing and very useful. I would like to see and experience more of this type of joined-up thinking in all our embassies and high commissions. Is this indeed the culture at embassies and high commissions overseas, as well as at departments in London? It is desirable to have collaboration between the Foreign Office, DfID and, of course, UKTI. Does the Minister envisage more of our own Ministers visiting Africa and attending trade missions and conferences in London? In addition, will he look at the potential to increase the frequency of missions and the opportunities for businesses to get involved?

I believe that aid and trade go hand in hand. Those in countries such as Nigeria, Kenya and Tanzania receive significant amounts of aid from DfID. This support is very welcome, but only through increased trade will we help communities and economies to flourish in the longer term. We must concentrate on trade as well as aid.

2.20 pm

Baroness Scotland of Asthal (Lab): My Lords, I thank the noble Lord, Lord Sheikh, for instituting this very important debate. Perhaps I may take this opportunity to welcome the maiden speech of the noble Lord, Lord Oates, who I am sure will intrigue us with his strategic delivery, in the same way as he led the Liberal Democrats so well. I also take this opportunity to declare my interests as both the Prime Minister’s trade envoy to South Africa and Dominica’s candidate to be the next Secretary-General of the Commonwealth.

The African diaspora are of critical importance here in the United Kingdom but the way the United Kingdom has engaged in Africa is of enormous importance to us in relation to trade. Noble Lords will know that the Commonwealth has 18 members of the African Union among its members. The Commonwealth itself is responsible for 33% of the global population and has 15% of the world’s GDP, so it is responsible for $3 trillion in annual trade.

I want to take a moment or two to say a few things about South Africa, which has a total stock of United Kingdom investment of around £72 billion. The UK is the largest single foreign investor in South Africa and more than 600 South African companies invest here in the United Kingdom. The annual trade in goods and services alone is worth approximately £10 billion. This market is of enormous importance to us. We all know, too, that the Commonwealth Games will be held in Durban in 2022. It is the first time that Africa will be hosting the Games, and here in the United Kingdom we have real expertise to share with them, which will give us huge trade opportunities. They greatly welcome this opportunity to receive our help and assistance.

As trade envoy, since November 2012 I have been on at least six trade visits to South Africa, each of which created warmth and appreciation for the trade we have enjoyed with them. That has significantly improved our key relationship, and people in South Africa have told me that the trade envoy role is particularly valued because of its consistency and continuity. I am very glad to see my noble friend Lord Risby—and I do see him as a friend—sitting behind the Minister, because

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he and I are among the six from this House who have been made trade envoys. We have formed a cross-party union to support British trade overseas.

A Minister in the Presidency in South Africa, Jeff Radebe, as well as Rob Davies, the Minister for Trade and Industry, and John Jeffery, the Deputy Minister for Justice, have told me specifically how important they see this relationship, together with the opportunity to build strong relations with the South African high commissioner here in London. We have had a number of successful visits from the Lord Mayor of London, two of which have created real opportunities for trade. The northern powerhouse mission will go early next year and we have been involved in a number of bilateral events. Do the Government intend to remain committed to the trade envoys and the efforts they have been making to enhance trade? What efforts does the Minister intend to make to ensure that the work of the trade envoys is better supported, so that we get real value out of the pro bono commitment that each and every trade envoy gives to the betterment of British trade?

2.24 pm

Lord Chidgey (LD): My Lords, first, how intriguing it was to hear the comments from the noble and learned Baroness. I had not realised her connection with Dominica—a beautiful country which I once visited, and which I think is famous for its ecological tourism. Thank you for that information.

I congratulate the noble Lord, Lord Sheikh, on bringing this issue to us today. Speaking as the co-chair of the All-Party Africa Parliamentary Group, I think his speech told us an awful lot about Africa’s potential. Perhaps I may say how much I, too, look forward to the maiden speech from my colleague and noble friend Lord Oates, who I understand accompanied the noble Lord, Lord Sheikh, to Ethiopia. My noble friend brings to your Lordships’ House a wealth of experience in local and national government, having served as the deputy leader of Kingston-upon-Thames Council and, latterly, as the chief of staff of the Deputy Prime Minister in the last Parliament.

In encouraging bilateral trade between the UK and Africa, a good point of reference is the importance of good governance to investors in creating stable and reliable markets. Accountability, transparency and probity are the new watchwords in the international aid and development world, coupled with an overarching demand to gain value for money for taxpayers in results-based aid and development programmes. So far, so good, but what about encouraging UK bilateral trade at the sharp end by getting into the marketplace ready to negotiate, keen to trade and to set up joint ventures and win business? Questioning one ambassador in Africa on how UK business development was going in his country generated an interesting response. Apparently, a major UK oil company had just secured a multi-billion pound project with the possibility of subcontracts then trickling down to UK firms. In other words, the box for expanding UK trade was well and truly ticked.

In reality, of course, multinational organisations are well equipped to do their own business development and are unlikely to need embassy support, unless they are in diplomatic or political trouble. What we need to

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know is—I hope that the Minister can start to answer this in his reply—what guidance is given to embassy and high commission staff on assisting small to medium-size enterprises? The SMEs are the companies with the flexibility and the ideas for developing world-beating products. They are critical to our economic growth, but often without the financial resources to pursue African markets, develop products and support their customer base. Can the Minister tell me what training FCO and DfID staff are given in market assessment and business development, for example, and in establishing protocols within which they can assist private sector companies fairly and evenly?

UK-Africa bilateral aid is increasingly influenced by EU trade agreements, particularly the contentious economic partnership agreements, or EPAs. African countries are placing renewed emphasis on developing their food processing industries, creating more employment and adding greater value to their agro-food exports, often in partnership with UK and EU-based companies. A reality is emerging, however, in that in a number of agro-food sectors the rise in imports of these products is generating a disconnect between expanding urban demand and the rural African hinterlands. By removing tariff and non-tariff barriers, the EPAs have led to a massive increase in the value of EU agro-food exports to sub-Saharan Africa. Local African farmers and producers are being severely damaged by EU exports, which now account for nearly 50% of the poultry meat sector, for example, and are closing off their market opportunities. Similarly, expanding EU milk powder exports are substituting for local milk production, to the detriment of local farmers. Far greater scrutiny is needed of how trade and agricultural policies impact on the efforts of African countries and regions to promote the development of agricultural sectors.

In conclusion, will the Government pledge to recognise fully the development needs of African countries in the agro-food sector and that, within the UK’s compass, no sub-Saharan African Government will be obliged to implement trade policy measures that undermine their national agro-food sector strategies?

2.28 pm

The Lord Bishop of Southwark: My Lords, I am grateful to the noble Lord, Lord Sheikh, for a debate so pertinent to the times in which we live. I, too, look forward to the maiden speech of the noble Lord, Lord Oates. Although my knowledge of Africa at large is somewhat limited, I am a regular visitor to Zimbabwe, with my diocese having close links to four of its five Anglican dioceses: those of Central Zimbabwe, Manicaland, Matabeleland and Masvingo. The bishops, clergy and people of those places share a good deal of the reality of their lives and faith with me, and demonstrate remarkable resilience and strong hope in the face of adversity.

Zimbabwe has achieved a fragile economic stability through the abandonment of its currency in favour of internationally traded currencies—principally, the US dollar. This is undoubtedly of great significance for commerce and trade and there are goods in the shops, but most of the population are shut out from any prosperity springing from state and private investment. Unemployment is estimated to be well over 80% of the

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working-age population. Most people, in consequence, have few or no choices beyond the bartering of goods and subsistence farming—in other words, working directly to consume.

Thus, when referring to an entire continent and its welfare, a good deal is to be said for the place of particularity, politics and aid, on which Her Majesty’s Government have an impressive record. Much is changing, but in many places issues around governance, rule of law and infrastructure are key to any future improvement. The wisdom of a focus on trade is telling, but even then one should ask, “On what terms?”. Economic relationships are not always equally balanced.

I will cite one example: the tax treaty between Senegal and the United Kingdom. In the ActionAid briefing in September, the charity highlighted what it believed were the unfair provisions on Senegal that, it claims, are not typical of such tax treaties. We are told that the treaty provides that,

“activities associated with a building site in Senegal conducted by a British firm will not be taxable in Senegal”.

Similarly, ActionAid claims that,

“royalties paid to the UK for radio and TV programmes broadcast in Senegal”,

are not taxable. There are other examples. In many such scenarios, one should therefore ask: who benefits?

One might ask a further question: who lobbies? Who lobbies on such tax treaties that have a bearing on trade? So I ask the Minister: is it not time for the Department for International Development to work more proactively to discourage large UK companies from avoiding tax in developing African countries? This would accord to our international trading partners the same dignity and scrutiny that Her Majesty’s Government are promoting within our own national boundaries.

2.32 pm

Lord Risby (Con): My Lords, I congratulate my noble friend Lord Sheikh on introducing this debate. I have read his report on Ethiopia—a country that has had a difficult past but has certainly made enormous progress— with great interest, and I very much look forward to the maiden speech of the noble Lord, Lord Oates.

Looking back particularly over the past decade or so, we have seen a huge number of African success stories—I pay tribute to the noble and learned Baroness, Lady Scotland, who is trade envoy to South Africa, where such progress has been made, and my role as the Prime Minister’s trade envoy to Algeria is one that I absolutely cherish and enjoy—but the truth is that there are some difficulties on the horizon, in which I believe we can play a role in helping. Many of the economies in Africa have been based on rising commodity prices, but we are now seeing some weakness and there is some concern, and of course the question is how long this will go on for.

A number of African countries have sought to look at diversification, and here we have a unique capability. In the reform of their capital markets and their banking systems—of course, without that their growth would

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be inhibited—we have a unique offer. We have an outreach programme by the Stock Exchange that interfaces with other countries. We have in this country unique support systems involving lawyers, accountants and insurance specialists, and I have seen all of this on offer to our friends in Algeria. Indeed, I praise the work of the Lord Mayor, who has recently been to Africa, and the previous Lord Mayor, whom I had the privilege of being with in north Africa during her visit.

The second point that I would like to make is that many African countries have a demographic challenge of young people, and we in this country have been quite successful latterly in embracing technological change. We have seen a record start-up rate in this country by international standards, including the establishment of Tech City, and we have set about abolishing some of the red tape, regulation and overprotective employment laws that were inhibiting start-up activity. These are things that, in my role, I have been trying to point out to Algerian friends as very important, and in these aspects of our life we want to share our experience with other African countries, which I believe will welcome what we have done. As my noble friend the Minister contemplates improving business links with Africa, of course there are millions of young Africans who are extremely well educated and motivated and eager to deploy modern technology to start up their own businesses—this is something that I hear everywhere. However, as we look to commodity-rich Africa and help it to grapple with the challenge of diversification, I would just point out that, in a country such as Algeria, which is energy-dependent, it has become very necessary to improve the financial infrastructure—and, again, this is an area where we have an unparalleled advantage.

I would also mention the importance of the expansion of the British Council in a number of African countries. English has become the dominant language of modernity, telecommunications and technology, and in many African countries English is well spoken and can be a key part of our offer. I hope that this aspect, one of the key underpinnings of our relationship, can continue to be offered and expanded.

As my noble friend, who is spearheading so effectively our export effort, contemplates how we can improve our bilateral relationships with a number of African countries, I hope that all these things can be offered to supplement the dynamism and energy that exists in African countries but also to help with the challenge of diversification, which at this juncture is for many of them an important issue that they have to face.

2.37 pm

Lord Oates (LD) (Maiden speech): My Lords, it is an honour to make my maiden speech, albeit necessarily briefly, in this debate. I want first to thank everybody who made my introduction to your Lordships’ House so easy—in particular, Black Rod and his staff, the doorkeepers, attendants and police officers, who have been an unfailing source of directions, advice and, above all, patience. I also want to thank my two supporters, my noble friends Lady Parminter and Lady Suttie, who have been great friends to me over many years.

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I have taken the geographic part of my title, Denby Grange, in tribute to my late uncle Lawrence, who was a miner at Denby Grange colliery in West Yorkshire all his life. My title is not only a tribute to him; it is a wider acknowledgement that my good fortune is built on the shoulders of my grandparents and parents, uncles and aunts. They all faced much tougher challenges than I ever have and, through the sacrifices they made, they opened up a whole world of opportunities to their children and grandchildren that they never had themselves.

I am pleased to have the opportunity to speak in this important debate introduced by the noble Lord, Lord Sheikh, whom I first had the pleasure of meeting when we both took part in a delegation to Ethiopia this September. That was not my first visit to Ethiopia. Thirty-one years ago, aged 14, I sat in front of a television set and watched Michael Buerk’s harrowing BBC news report from northern Ethiopia exposing the horrific human tragedy that was unfolding. That broadcast ignited an enormous sense of anger in me. Much of the disaster was manmade. In the West, we sat on millions of tonnes of intervention stocks—the legendary grain mountains and wine lakes—as hundreds of thousands of people starved to death.

I decided that something had to be done and, with the self-righteous certainty of a by-now 15 year-old, I felt that I was obviously the person to do it. So I ran away from home, to Ethiopia, determined to change the world—the full story is actually a little more complicated than that but, given the time constraints, I hope that noble Lords will forgive this rather concise summary. Once in Ethiopia, I rapidly discovered that the demand for unskilled 15 year-old English boys was not huge, and that Colonel Mengistu’s Ethiopia was a particularly terrifying and dangerous place. I was rescued from it by an Anglican clergyman, to whom I owe my life. He told me bluntly that I needed to go home and learn some skills, but he also told me that it would not be long before the TV cameras forgot Africa again. He asked me not to do the same. I never have.

Over the past two decades, I have had the opportunity of living and working in Zimbabwe and later South Africa, where I have learned many important lessons and been nurtured by deep and enduring friendships.

Ethiopia today is a very different place from the Ethiopia of 30 years ago although it remains hugely vulnerable to drought, as Clive Myrie’s BBC news report on Monday underlined. The Ethiopian Government have achieved impressive development successes over the past decade with the help of UK development aid. I was proud to work in the coalition Government when we met the 0.7% target for development aid and when Mike Moore in another place and my noble friend Lord Purvis of Tweed enshrined that in law. But if Ethiopia’s successes are to be sustained, the Ethiopian economy needs to continue to grow sufficiently to support development from its own resources. Trade could and should play an increasing role in that. Expansion of UK-Africa trade offers huge and mutually beneficial opportunities for African economies and British companies. With the right policies, we have a real opportunity to lead the world in a growing trading relationship with Africa.

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The Government have rightly put much store by expanding trade with China and India, but we are well behind the pack there. In Africa, we still have the chance to lead. I hope that we will take it.

2.41 pm

Lord Alton of Liverpool (CB): My Lords, the noble Lord, Lord Oates, has chosen a good debate in which to break the ice with his maiden speech and he has acquitted himself with distinction.

The noble Lord referred to his father, who was the one-time rector of St Bride’s in Fleet Street. The noble Lord brings considerable experience to your Lordships’ House, having trod the well-worn and honourable route from local government into national politics. As we heard from the noble Lord, Lord Chidgey, he is a former councillor and deputy leader in the Royal Borough of Kingston upon Thames. He served as director of policy and communications for his party and, from 2010 to 2015, was chief of staff to the right honourable Nick Clegg. His friends describe him as calm and principled, and we saw that in his speech today. Outside politics, his working life has encompassed a number of political, communications and public affairs roles with, among others, Westminster Strategy, Bolland & Associates and Bell Pottinger public affairs. He also served as policy and communications co-ordinator for the Youth Justice Board.

As we have heard today, the noble Lord has considerable international experience, not least knowledge of Ethiopia, which, as he rightly said, is topical again today for sad reasons. While working for the Westminster Foundation for Democracy, he advised the Inkatha Freedom Party in the South African Parliament, working with the Home Affairs Minister, Mangosuthu Buthelezi, and the Reverend Musa Zondi. These rich and diverse experiences will make the noble Lord’s a voice which we will always look forward to hearing, and the whole House will want to congratulate him on his excellent maiden speech.

Today’s short debate focuses on bilateral trade in Africa, but trade cannot be detached from questions of conflict, corruption and governance. I am particularly indebted to the work of Saana Consulting, which works as an external secretariat of the All-Party Group on Trade out of Poverty, for the updates on trade figures which it has provided.

Sub-Saharan Africa, which, with a per capita income of around $1.25 per day, is the least successful region of the world in reducing poverty, should give us all pause for thought. Despite the spectre of war and instability, total trade between the UK and sub-Saharan Africa has increased by nearly 25% from pre-global financial crisis levels up to 2014. However, the UK’s share of the region’s trade with the world has remained unchanged at 3% since pre-crisis levels. Meanwhile, China’s share of the region’s trade increased from 12% to 18% in the same period. We can learn a great deal from the way in which China goes about developing its trade relationships in Africa. A new UK strategy is needed better to understand the way in which China, India and Brazil have increased their trade and investment footprint in Africa in recent years. I think that they have better understood than us the importance of

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infrastructure projects—for example, the construction of roads and power stations—working with African Governments. I hope that this will be a part of our own strategy. A new UK strategy should also have clearly measurable outcomes and track key indicators year on year, such as the value of new UK business investments and the number of jobs created. We should also expand the UK Prime Minister’s trade envoy programme, referred to by the noble and learned Baroness, Lady Scotland, to more key trade partners in sub-Saharan Africa. We might also establish an annual UK-Africa CEO and heads of state summit on boosting UK-Africa trade and investment.

An African friend summarised the approach which we should take as follows: first, the trade opportunities must offer value; secondly, the approach should be underpinned by a proper understanding of the diverse nature of Africa; thirdly, we should identify and develop new partners and new channels; fourthly, we should be seen to be genuinely looking out for the interests of Africa; fifthly, trade should be genuinely bilateral and not a one-way street, and bilateral trade should offer primary socioeconomic development of Africa in rural communities and agriculture; and, finally, we should eliminate proxies, with too much bilateral trade being done by proxies rather than through direct contact with the true stakeholders involved. These seem to be admirably sensible suggestions and would fulfil the need to listen to African voices and not just to our own.

2.46 pm

Lord Popat (Con): My Lords, I, too, thank my noble friend Lord Sheikh for instigating this important and timely debate. We have a shared love for Africa and a passion to see Anglo-African relations given a greater standing by both the Government and the private sector. I also echo the words of the noble Lord, Lord Alton, in commending the noble Lord, Lord Oates, who made an excellent maiden speech and recalled his experiences in Ethiopia.

On Friday, the Office for National Statistics gave us some good news: our trade deficit fell from £10.8 billion in August to £9.4 billion in September. Our inability to export more than we import has become a largely unchallenged part of the economic make-up of our country. Not since 1998 have we run a trade surplus, and that was only for a short period.

Our leading politicians and business figures fret about our membership of the European Union despite its obvious economic and demographic issues, and many have realised that we have to build stronger relations with India, China and other emerging countries to balance out our continental problems. Yet the incredible rise of Africa—the obvious potential of this brilliant continent—has been ignored by far too many.

Africa is waiting for us to acknowledge that the prism of aid, conflict and corruption that we continue to see the continent through is almost entirely out of date. The recent responses in Burkina Faso and Burundi were a wonderful demonstration of how far Africa has come: two military coups that not only failed but saw organisations such as the African Union and ECOWAS play leading roles in resolving matters peacefully. We need

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our politicians to acknowledge the tremendous progress that Africa has made and the potential it has. We need to acknowledge that Africa is our partner, not a charity.

The former President of Nigeria correctly said that Africa is the last great frontier of emerging markets. The United States has seen the potential: President Obama held a hugely successful African summit last year. Last month, Prime Minister Modi and the Indian Government held their own African summit, with my good friend Anil Agarwal helping to bring it together. The UK has been behind the curve too many times, allowing others to build trade, economic and strategic relations first and then constantly trying to catch up. Let us not make the same mistake again.

The positive signs are all there: Africa is home to the fastest-growing middle class in the world. Six out of the world’s 10 fastest growing economies are in Africa, and economic growth is averaging around 5% across the continent. Democracy is now winning the long-standing battle in Africa. Whereas before, power was transferred with bullets, increasingly it now relies on the ballot box. In Commonwealth countries, the rule of law and constitutional set-up is largely based on the British system, and as we know, most trade in Africa relies on the English language. As the noble Lord, Lord Alton, said, we must wake up to Africa’s serious economic potential and make improving trade relations with Africa a foreign policy priority.

Perhaps most important is the continuing issue of the trade deficit, particularly in respect of goods. We need to find new markets for British goods and to encourage firms that do not currently export to do so. We need a strategic and targeted approach. If the Government encourage the FCO, UKTI, the British Chambers of Commerce and other organisations to work together, we can reintroduce and rebrand Africa for the British business community.

2.50 pm

The Earl of Sandwich (CB): My Lords, the noble Lord, Lord Sheikh, has raised a fascinating subject, on which I congratulate him. I also congratulate the noble Lord, Lord Oates, on his excellent maiden speech and welcome the Minister to the House and the Front Bench.

As someone with an NGO background, I am interested in the relationship between trade and aid. With the Government’s renewed emphasis on trade support through DfID, and with the increased aid budget, there will be more pressure to find private sector projects. I personally favour using aid for trade, but it must not be tied aid. DfID must develop its own trade expertise, poverty reduction must remain the focus and partnerships with organisations such as SMEs and NGOs must not be exploited, as the noble Lord, Lord Chidgey, and the right reverend Prelate pointed out.

The Minister will know that DfID’s ventures into trade have not been entirely successful. ICAI, the aid watchdog which reports to the Commons International Development Committee, has been keeping a close eye on DfID’s business ventures. In 2013, it showed that TradeMark Southern Africa, promoting a free trade area between Durban and Dar es Salaam, had failed

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to meet its targets. TMSA was then closed down by DfID, and the Permanent Secretary even had to apologise to the Select Committee.

ICAI also said DfID needed to improve its financial oversight of programmes, and the NAO echoed these findings. DfID has promised to do better, but does the Minister know whether there has been progress, especially in relation to TMSA’s sister programmes, the MRGP—the Mozambique Regional Gateway Programme, which links the north-south corridor to ports in Mozambique—and the older TMEA programme in east Africa? The Commonwealth Development Corporation is being given additional funds to boost private sector investment in such projects as hotels and shopping centres. Does the Minister consider that the revamped CDC is a suitable channel for DfID funds, which are legally required to reduce poverty? DfID will need to develop its expertise in these larger regional programmes because aid money has been, and is being, wasted. I remember some successful large Africa projects in the past, notably customs and excise reform through the Crown agents in Mozambique.

Of course, the UK must operate through development banks and multilateral agencies, but there is a problem of mounting debt to the IFIs. The investments of the wealthy do not necessarily, as we all know, trickle down to the poor and may accentuate the poverty gap. Why not invest in the poor themselves? NGOs have long put their money into income generation and microcredit in the poorest communities. Trade at the village level was originally pioneered by the Grameen Bank in Bangladesh, and multiplied many times in Africa. Savings and credit schemes can be the most efficient method of starting up small local businesses and stimulating the informal economy. Loan repayment rates among the very poor are the fastest and most efficient you can find.

Finally, another government initiative is the UKTI and FCO’s overseas business risk programme, which with Morocco now covers 16 African countries. Naturally, many of these are conflict states and it is to UKTI’s credit, and thanks to some of DfID’s efforts, that the UK has been successful in attracting investment even to the remoter and more dangerous regions of those countries. Taking Kenya as an example, the presence of terrorism on two of its borders has not been a sufficient deterrent to business, with the Nairobi Securities Exchange up with the leaders in the world and with investment at record levels. As other noble Lords have said, African business has been, for once, a good news story and we all hope it will remain so.

2.54 pm

Lord Mendelsohn (Lab): My Lords, I draw attention to my interests in the register. I congratulate the noble Lord, Lord Sheikh, on introducing this debate, which has been an extremely interesting one with some quite impressive contributions. The noble Lord, Lord Sheikh, has frequently raised the question of Africa in this House, and vividly illustrated in his comments not just his expertise but the huge business opportunities there. We owe him a great debt for raising this topic today. I also congratulate the noble Lord, Lord Oates, on a quite outstanding maiden speech. Through colleagues

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in the House, I am aware that he did considerable work in South Africa some 15 years ago in helping to improve the processes and training for people’s contributions to the parliament there. Fifteen years later, we are going to be privileged with quite a few improvements and quite a few distinguished contributions. We wish him well in the House.

I will make some very simple points and raise a few questions for the Minister, who has started his task with great aplomb. First, it is always very clear that in a UK context, our priorities have not placed Africa very high up the pecking order. That is to be understood to some extent, given the short-term priorities, but it would be a mistake not to give it the right level of attention. It is also the case that our performance in Africa has declined. Our top export destinations are the US, Germany, France and the like, but five African countries feature in the list of the top 50 markets for the UK: South Africa is 22nd and Nigeria is 34th. So there is not an immediate priority, but the long-term interests are there and our relative performance is starting to decline. France has taken a very strong approach: it has a mission to double trade; it has held a summit with 50 African leaders; it has doubled its aid; it has looked at expanding its soft power through schools, businesses and education; and it is looking to enhance the 5,000 French businesses investing in Africa through access to finance and the establishment of a wide variety of bilateral trade and investment councils. It is a long-term play, and perhaps we should have more focus on those sorts of ideas.

It is certainly true as well that Africa is developing and coming on in leaps and bounds. The population is sure to rise: in the next 25 years, Africa’s working-age population will more than double to more than 1 billion, surpassing both China and India. Africa has also developed quite well in relation to regulation and performance, which is to be encouraged. That leaves us with the dilemma of how best to use these assets and our opportunity to make a difference at this stage.

I would like to ask the Minister about some ideas. We have heard about the trade envoys—I pay tribute to the great work of the noble and learned Baroness, Lady Scotland, and wish her well on hopefully becoming Secretary-General of the Commonwealth, as well as to that of the noble Lord, Lord Risby, and the noble Lord, Lord Hollick, who I know has a role with Kenya and Tanzania, about which I have spoken with him in other places. But are we giving them the right level of support? What is the next phase of using trade envoys more effectively? UKTI has limited resources and a skills base that is based around civil servants. Given the limited resources, and the use that some countries make of their aid budgets, do we have the right skills inside UKTI to leverage them? Are there people inside DfID who have had more experience of how that is done who we should transfer?

Finally, I will make one simple point about entrepreneurs. Africa is going through an explosion of entrepreneurship: a number of people have come over to the West and will go back and establish businesses. Also, the gender parity is quite extraordinary. Are we using the best resources that we have with our industries here to be able to maximise that opportunity as well?

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2.59 pm

The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Maude of Horsham) (Con): My Lords, this has been an excellent debate. It gives me great personal pleasure to congratulate the noble Lord, Lord Oates, on a terrific maiden speech—if I can say so from all the veteran status of having been here six months longer than he has. It was charming, humorous, thoughtful and serious. He and I cohabited in the Cabinet Office for the past five years, both physically and politically, and it was always a pleasure working with him. We were very rarely in conflict with each other, despite the occasional tensions of coalition; we were more often in unity to try to get stuff done, which, as we both know, was often the challenge in a system that did not always relish change. It is a great pleasure to see him here, and I thank him for his terrific contribution to this important debate.

I also congratulate my noble friend Lord Sheikh on having sought and achieved this debate; it is incredibly important. He and others made the point that, although there are enormous attractions in increasing our business in China and India, the big growing markets, we should not let that detract from the importance of Africa. There is no one better qualified in this House, with his background in business and his African heritage, to have introduced this debate, as he did in an incredibly knowledgeable and serious way—unless, of course, it might be my noble friend Lord Popat, who also spoke with great knowledge and thoughtfulness on this important subject.

First, I praise the work of a number of noble Lords who have taken on pro bono—unpaid—the work of representing British businesses abroad as the Prime Minister’s trade envoys. We already have my noble friend Lord Risby and the noble and learned Baroness, Lady Scotland, who courteously told me that she had to leave for an important engagement—at Marlborough House, I think she said. I cannot think what that is related to, but we wish her very well in her quest to be the next Secretary-General of the Commonwealth. The noble Lord, Lord Hollick, was here earlier. All of them have done amazing work in Africa: my noble friend Lord Risby in Algeria, the noble and learned Baroness, Lady Scotland, in South Africa, and the noble Lord, Lord Hollick, in Kenya and Tanzania.

There are of course enormous opportunities. My noble friend Lord Sheikh talked about Ethiopia, as did the noble Lord, Lord Oates. It is astonishing: it is the ninth fastest growing economy in the world; it is the second most populous country in Africa; its GDP has increased fivefold since 2000—just in the past 15 years. It is of course just one of many countries in Africa which are replete with opportunity. The scope of opportunities across the continent is wide and varied. In Algeria, as my noble friend Lord Risby said, there are opportunities right across the board in infrastructure, healthcare, education, agriculture, retail and the defence and security sectors. Algeria now has domestic reserves of nearly $160 billion, and it continues to press ahead with its impressive development plan, in which it will be spending $262 billion, so it is replete with opportunity.

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My view is that, over the next 25 to 30 years, it is very likely that most of Africa will take off and light up. There will be a huge amount of growth. The truth is that we do not and cannot know precisely in which parts and when that will happen. Given that our resources in terms of government support for trade are necessarily limited, we need to be prepared to support development wherever it is. We must accept, as the noble Lord, Lord Mendelsohn, did, in his typically thoughtful and constructive contribution, that we need to be prepared for the long term, and not be left behind, not to look opportunistic, late to the fair, when opportunities open up. We need to have built the relationships beforehand.

One of the ways we will do that is by appointing more trade envoys to cover much more of Africa. Envoys are a really good way to build long-term relationships with continuity and longevity. Last week, during the visit of President Sisi of Egypt, I was delighted to announce that Jeffrey Donaldson, a Member of the other place, has agreed to become the trade envoy for Egypt.

How do we do that? We need to mobilise the whole of government. As I said in my maiden speech in this House, it struck me when I took on this role that too much of the burden of supporting business and exports from government was falling on UKTI alone. That cannot be right: we need to mobilise the whole of government behind that effort. Abroad, in our posts overseas, the substantial network of the Foreign Office and the Department for International Development is, rightly, increasingly being used to support British businesses in Africa under the joint Africa framework.

UKTI, DfID and the FCO work together as one to push for improvements to the business environment, which are beneficial in themselves to promote development in those markets, and to bring opportunities to the attention of business. This is relevant to the point made by the noble Earl, Lord Sandwich, in his important contribution. It is important to stress that there is no conflict between the role of DfID in promoting home-grown, private sector-led growth in those less well developed countries, with a relentless focus on reducing poverty, and our broader aim of increasing trade and investment in countries that we support with unprecedentedly generous levels of development aid. I am grateful to the right reverend Prelate the Bishop of Southwark for his generous acknowledgement of the scale of that aid. The Conservative Party was committed in its manifesto in 2010 to be the most significant country to meet its UN commitment to spend 0.7% of GDP on aid, and the coalition Government implemented it, at a time of great financial stringency, as he will recall. We should also accept that that brings a great deal of good will in its train.

There is much we can do: lobbying in Ghana for greater transparency in the oil and gas sector; in Mauritius, helping to influence the Government to lift a travel ban; and enabling Nigerian students to come to Middlesex University. This is just the start of what we can achieve on behalf of British businesses. DfID’s support to help the east African skills base has helped to make the oil and gas projects there more competitive in what is a highly competitive world market for hydrocarbons.

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As several noble Lords said, the key to economic success is to have stable and secure markets, which is why the whole-of-government approach to supporting our businesses makes such sense. African markets can access a number of UKTI programmes which can help. The High Value Opportunities programme, which several noble Lords mentioned, provides industry-specialist support to help root out opportunity overseas and communicate market entry routes. I stress that it is available to SMEs, as well as big businesses. It is very important that when we support businesses to bid for those opportunities, we do whatever we can to encourage them to bring supply chain from the UK in their train. That is an important part of building our exports.

UKTI’s aid-funded business team works closely with agencies such as the World Bank and the ADB to make sure that British businesses know about and can access the opportunities from the programmes which emerge from those bodies. A recent mission to Uganda and Tanzania focused on that.

My noble friend Lord Sheikh and others asked about ministerial support for outward and inward trade missions. We should do more of this. Trade envoys can play a very important part, especially in those markets which, in the nature of things, will not receive many ministerial visits. However, it should not just be Ministers such as myself. Sector Ministers and FCO geographic Ministers should be taking business delegations with them, and there is no reason why Ministers in DfID, when they visit countries that we are supporting, should not do so. We should be doing more of that, with more focused support. I want to ensure that, as we reconfigure the headquarters of UKTI, we strengthen the support for all that outward activity.

Much is being done and much more can and should be done. UK Export Finance plays an important role here. It offers some degree of cover in most countries across Africa, but we need to do more to raise awareness of what is on offer. We do not always do enough on that.

Trade policy is important to open up opportunities. I shall attend the World Trade Organization meeting in Nairobi in December. We hope to conclude the Doha development round. We are not optimistic that there will be a huge breakthrough, but we acknowledge the concerns raised by the noble Lord, Lord Chidgey. Much more can be done. The noble Lord, Lord Alton, referred to the involvement of China. We can work alongside China on some of those opportunities. I do not wholly sign up to everything that China has done in Africa but there are lessons for us there for the future.

On the Commonwealth, again I wish the noble and learned Baroness, Lady Scotland, well in her endeavour to be the next Secretary-General. We underestimate the strength of the Commonwealth as a network for business. With the advantages we have in this country of the language and time zone we should make more of it.

On visas, we take the points made by my noble friend Lord Sheikh very seriously. There will always be a tension there but we need to make this work better to increase the ease of travel in the ways to which he referred.

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Finally, at the beginning of this week we launched our Exporting is GREAT campaign, which encourages particularly SMEs to get stuck in to export. It is not as difficult as they are sometimes made to feel and we can give them much more support, not just from government but by developing interesting, innovative and practical programmes of support to enable them to get over those hurdles. I am grateful to all noble Lords for the seriousness with which they approached this important debate. We will take on board the concerns, ideas and suggestions made.

Bank of England and Financial Services Bill [HL]

Committee (2nd Day) (Continued)

3.11 pm

Clause 20: Administration of senior managers regime

Amendment 22

Tabled by Lord Bridges of Headley

22: Clause 20, page 17, line 18, leave out paragraph (d)

Lord Ashton of Hyde (Con): My Lords, Clause 20 makes a number of technical amendments to the provisions governing the administration of the senior managers regime, including those relating to the provision of updated statements of responsibilities.

On government Amendments 22 and 23, Clause 20(3)(f) imposes a restriction that prevents firms using an application to vary a condition or time limit as a device to appeal against enforcement action taken by the regulators. This is appropriate because the regulators can take enforcement action only after following the procedure laid down in the Financial Services and Markets Act 2000. That procedure naturally includes proper provision for appeals. It would not be right to allow a further quasi-appeal route by means of application to vary conditions or time limits when those had been imposed as part of enforcement action.

However, Clause 20 goes a bit further than we intended. Subsection (4)(d) would impose a similar restriction preventing the regulators from varying conditions or time limits imposed as a result of enforcement action on their own initiative. That would clearly be unnecessary and could prevent regulators from responding appropriately when circumstances have genuinely changed. Government Amendment 22 corrects this oversight.

Government Amendment 23 makes some consequential changes to Section 204A of the Financial Services and Markets Act 2000. That section ensures that each regulator has the power to take enforcement action when regulatory obligations owed, in effect, to it are breached. This amendment simply makes sure that the section will work correctly where the regulators wish to take enforcement action in relation to breach of a requirement to provide a revised statement of responsibilities.

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Lord Davies of Oldham (Lab): My Lords, we are in agreement with the Government.

Lord Ashton of Hyde: Then I beg to move.

Amendment 22 agreed.

Amendment 23

Moved by Lord Ashton of Hyde

23: Clause 20, page 17, line 22, at end insert—

“( ) In section 204A (meaning of appropriate regulator)—

(a) in subsection (3)(d) for the words from “the authorised person” to the end substitute “the revised statement of responsibilities is to be provided to the PRA only;”;

(b) in subsection (3A), after paragraph (b) insert—

“(ba) a requirement under section 62A(2) where the revised statement of responsibilities is to be provided to the FCA and the PRA;”.”

Amendment 23 agreed.

Clause 20, as amended, agreed.

Clause 21: Rules of conduct

Amendment 24

Moved by Lord Sharkey

24: Clause 21, page 17, line 45, leave out paragraph (c)

Lord Sharkey (LD): My Lords, this is essentially a probing amendment and I shall be brief. Clause 21(3)(c) amends Section 64B of FSMA 2000—the responsibilities of authorised persons in relation to rules of conduct—by omitting subsection (5). The subsection to be omitted says:

“If a relevant authorised person knows or suspects that a relevant person has failed to comply with any conduct rules, the authorised person must notify the regulator of that fact”.

This seems a perfectly straightforward, reasonable and clear duty to impose on the relevant authorised persons. Who could imagine or want a regime in which misconduct was known or suspected and there was no obligation to report the fact?

I asked the Minister at Second Reading why this obligation to report to the regulator was being abolished, and I wondered, of course, whose interest was being served by its abolition. The impact assessment helps here, in that it notes that,

“the removal of the SM & CR obligation to report breaches of rules of conduct should result in savings (mainly for larger banks and building societies) … This cost reduction should mainly benefit larger firms because of the large numbers of staff they employ”.

There is no mention of any other impact as to conduct or misconduct. The only impact listed is a financial benefit, mainly for larger banks and building societies. The Minister addressed the question in his letter to me of last week. He said that,

“the requirement for firms to report all suspected or confirmed breaches of the rules of conduct has proved to potentially be a very costly obligation for firms, especially the larger firms which employ large numbers of staff, as they have to put in place

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detailed systems and controls to ensure compliance …The regulators can ensure that they are notified of any information about employee misconduct in a more proportionate way in their rules”.

This raises more questions than it answers. How does the Minister know that the obligation to report misconduct is, “proving potentially very costly”? Who has told him so? What evidence have they provided? How was this evidence assessed? How did he guard against the obvious danger of special pleading? What independent views were solicited? Critically, how did he asses the cost benefit of removal of the obligation to report misconduct against the cost of unreported misconduct? Can the Committee see the evidence base for all this?

I note that the Minister defends the removal of the obligation to report misconduct by saying that there are other non-statutory ways the regulators can assure they are notified of misconduct. Does he mean the FCA general notification rules, SUP 15.3.1(3)? Do not these rules impose a non-statutory burden equal to that imposed by the statutory obligation that the Bill removes? If they do not, does that not suggest they are weaker, or has the Minister in mind new rules?

What all this means is that we are being asked to repeal a statutory safeguard without knowing what its non-statutory replacement may be. That seems an unsatisfactory situation. In addition to answering the questions that I have just asked, could the Minister at least postpone activation of this measure until Parliament has had a chance to assess whether the current FCA rules are likely to be as effective as the current statutory obligation—or, if there are to be new rules, could he introduce them via statutory instrument to give Parliament a chance to scrutinise them? I beg to move.

Lord Davies of Oldham: My Lords, I shall also speak briefly and, largely, to endorse the arguments put forward by the noble Lord, Lord Sharkey. The impact assessment does not give a rationale for why the Government have made this decision, which we seek at this point. It would be useful to understand the reasons for the decision having been taken; without such information, we are not quite clear as to the advantages. Who was consulted on this, and what are the benefits to consumers and regulators? Surely it would put more pressure on the regulators to identify wrongdoing. Have the Government conducted investigations that take any of this into account? The Minister has a chance to reassure both of us who have spoken in this short debate on the reasons for the Government’s position.

Baroness Kramer (LD): My Lords, I shall say a brief word. My noble friend Lord Sharkey and the noble Lord, Lord Davies of Oldham, have both been very calm on this issue, but I shall admit that, frankly, I am outraged. The obligations that exist for so many people in the public sector to report misconduct—on teachers, police officers and members of the NHS—are taken as absolute requirements. There is no question of whether they are costly; it is understood that the importance of propriety and integrity in all those activities is crucial. I suggest that, after the years that we have been through following the financial crisis, no one should doubt that integrity in this sector is absolutely vital.

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When we sat on the Parliamentary Commission on Banking Standards, we discussed whistleblowing extensively. Every single institution that we talked to and everyone we could identify had in place mechanisms for whistleblowing; the problem is that none of them was effective. The kind of issues that were reported through whistleblowing systems were situations such as when someone had noticed someone sliding a £5 note out of a cashier’s desk—they were on that kind of scale. So none of the major abuses, whether it was PPI, the LIBOR scandal, the mishandling of credit issues or money laundering, came to the surface through any kind of whistleblowing system. This measure—the statutory requirement to report a breach when someone sees or recognises that it is happening—is one of the few mechanisms that we could conceive of to try to counter that particular set of problems. Without exception, everybody who gave evidence to the parliamentary commission talked about the importance of making whistleblowing much more effective. So far as I can see, there is no replacement to this requirement that is effective, that has been proposed—and, frankly, if there is a burden, surely any burden is significantly smaller than living with the consequences of sustained and ongoing abuse.

The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con): My Lords, I thank the noble Lord, Lord Sharkey, for provoking this short debate. I heed what the noble Baroness, Lady Kramer, and the noble Lord, Lord Davies, have said. I shall try to explain the Government's position. I need to examine the very insightful comments made by the noble Lord, Lord Sharkey, and may want to return to some of them in writing. If I do not address them here, I shall endeavour to do so in writing.

At first glance, this seems an obvious and straightforward requirement to impose on authorised persons. As the noble Lord will be aware, this requirement was introduced by the coalition Government through the Financial Services (Banking Reform) Act 2013. It is through that planned implementation of this provision that we have learnt that it is simply disproportionate.

Before I go into more detail, I reassure noble Lords that this does not mean that firms will be under no obligation to report wrongdoing to the regulators. First, a separate proviso in the 2013 Act will still apply: the requirement for firms to notify regulators that they have taken disciplinary action against an individual subject to the conduct rules, be it through dismissal, a reduction in pay or a written warning. Secondly, this requirement builds on the regulators’ existing principle for business that firms must tell them of anything that may be of interest to them. If a significant issue arose with the conduct of a member of staff that for some reason did not lead to disciplinary action, the firm would still need to consider whether it would be appropriate to alert the regulators.

In this context, the Government believe that a blanket requirement to report all known or suspected breaches of the conduct rules is disproportionate. In particular, an obligation to report suspected breaches is potentially open-ended and wide ranging for it forces firms to work out the point at which possible indications of breaches of rules of conduct would

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amount to a genuine suspicion. Then the firm would have to train staff to spot and assess those indications, and finally firms would need systems—

Baroness Kramer: The argument the Minister has made suggests that he does not believe that whistleblowing is a justified process. Almost every whistleblower who raises a suspicion is very unlikely to be able to present a signed and sealed case. It is surely the responsibility of the organisation where the whistleblowing has taken place to explore that. In fact, they constantly guarantee that that is exactly what they will do. The Minister is now saying that that is far too onerous. I find that incredible.

Lord Bridges of Headley: I am not saying that. I am saying that the process as a whole is potentially too onerous. I heed what the noble Baroness says, and of course whistleblowing is important. I shall continue, and we can continue to have this debate.

Finally, firms would need systems to ensure that the information is captured and transmitted to regulators, but it does not stop there. Having been notified of a suspicion, the regulators would have to decide whether to investigate and then, if appropriate, to consider what action to take. No doubt there would be many cases where there was only suspicion and nothing more and no action would be taken, but all cases would have to be investigated to some extent, and it would be difficult for regulators to do nothing at all once they had been notified.

Noble Lords should also note that, although the Government believe that an inflexible requirement to report all known and suspected breaches of conduct rules by all employees subject to them is inappropriate, the regulators can impose more targeted proportionate rules in this area if it supports the pursuit of their objectives.

The noble Lord, Lord Sharkey, raised costs. The costs in the impact assessment are based on the detailed cost-benefit analysis published by the regulators when they set out how they would implement the regime. I understand it is available on the FCA website, but I will write to the noble Lord and all interested Peers on this point. On that basis, I ask the noble Lord to withdraw the amendment.

Lord Sharkey: I thank the Minister for that answer and those clarifications. I cannot help feeling that removing the statutory obligation and replacing it with something that is still not yet entirely clear is perhaps not the best way of proceeding. However, under the circumstances, I beg leave to withdraw the amendment.

Amendment 24 withdrawn.

Clause 21 agreed.

Amendment 25

Moved by Lord Sharkey

25: After Clause 21, insert the following new Clause—

“Unsolicited marketing of debt management services

The Treasury shall require that the FCA amend the rules in its handbook governing unsolicited marketing so that they apply to debt management services.”

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Lord Sharkey: My Lords, I will be very brief. I know that the Committee is keen to move on to the simple and straightforward government amendments. This amendment is designed to do just one thing, which is to persuade the Government to ban cold calling in the service of debt management providers.

Cold calling lead generation and cold calling directly is banned for mortgages and has been for a long time. It was banned because it was felt that it generated high risk for consumers. Cold calling lead generation for debt management providers is much higher risk for consumers. The FCA published its thematic review of debt management advice in June of this year. It makes extremely worrying reading.

The FCA acknowledged that debt management is one of the highest risk activities in consumer credit. Its review found that: customers are not sufficiently made aware of the nature of the service being offered, including any fees they may be required to pay; customers are not being made aware, as is compulsory, that help in managing debt is available free of charge; the debt advice provided may not be in the customer’s best interests and debt solutions that are not suitable, affordable or sustainable are offered; customers are recommended or sold additional products that may not be in their best interests; the nature and level of fees charged by some fee-charging debt management firms is such that they affect the customer’s ability to make significant repayment towards their debt; and firms do not market themselves in a manner that is clear, fair and not misleading.

There is other stuff, too, about the lack of protection of client money. It is all extremely damning. I know that the Minister and the FCA are fully aware of this problem and of its scale. For example, StepChange, a free debt management advice company, had more than 500,000 people contacting it for advice in 2014 alone, which was a 56% increase on the number for 2012.

3.30 pm

Cold calling to generate leads for fee-charging debt management firms is a key aspect of the business. The FCA rules require cold callers to make customers aware of the existence of free debt management advice. The FCA found that information about the availability of free advice was either not provided, not sufficiently prominent or biased. Quite who regulates these cold callers is not entirely clear; there is a kind of regulatory Bermuda Triangle, with the FCA, the ICO and Ofcom all having some responsibility. As a result, cold callers are not properly regulated at all. I know that the Minister and the FCA have this under review, but it will take a year or so for that review to appear and longer for anything to actually happen. In that year or longer, hundreds of thousands, perhaps even millions, will have been exposed to unscrupulous cold calling lead generators.

We know what the problem is. We banned cold calling for mortgages. Cold calling lead generation for debt management companies affects the most financially vulnerable people in our society. The people affected are much more vulnerable than people looking for a mortgage. Why delay? Why not apply right now the

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same rules to cold calling for debt management as to cold calling for mortgages? That is what the amendment proposes; I beg to move.

Lord Tunnicliffe (Lab): My Lords, I support the amendment from the noble Lord, Lord Sharkey. One of the main concerns of the Financial Services Consumer Panel has been the uneven playing field between paid-for and not-for-profit debt management services. People are being exposed to poor debt advice, as the noble Lord said, and this needs to be addressed both directly and in the round.

The central concern is this curse of our modern time: cold calling. Something could be done quickly. A Labour amendment was voted through in this House during the passage of the Consumer Rights Act on caller identification, but it has not yet been commenced. In response to my noble friend Lady Hayter, the noble Baroness, Lady Neville-Rolfe, stated that the Government were about to begin a consultation on caller ID. Can the Minister say now, or in writing at a later date, what the timetable is for this consultation? When can we expect to see some action on this issue?

Are the Government considering any other measures that could help tackle unsolicited market practices? They include the automated reporting of nuisance calls; the collation of nuisance calls—for example, more than 100 complaints and the calling number’s owner could be automatically referred to Ofcom, the Information Commissioner’s Office and perhaps the police; and appropriate victim redress for persistent cold calls from the same organisation.

The concern highlighted by the noble Lord, Lord Sharkey, is important in its own right, and so is the whole issue of cold calling. The two come together in this amendment, which we support.

Lord Ashton of Hyde (Con): My Lords, the Government share the concern of the noble Lord, Lord Sharkey, about long-standing problems in the debt management market. Indeed, I have had the pleasure of answering questions from the noble Lord on this subject, and had a subsequent meeting with him and officials from the Treasury. We agree that it is imperative that vulnerable consumers in this market are treated fairly by firms and provided with the services that meet their needs.

As the Committee will be aware, responsibility for consumer credit regulation, including debt management firms, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The ensuing, more robust regime is dramatically improving consumer protections. The Government have ensured that the FCA has wide enforcement powers to take action where its rules are breached. There is no limit to the fines that it can levy and, crucially, it can force firms to provide redress to consumers.

Debt management firms are in the first group of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and practices. Every debt management firm will have to demonstrate compliance with the FCA’s rules and principles, including the requirement to treat customers fairly. Firms which do not meet the FCA’s threshold

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conditions will not be able to continue in the market. Decisions on those authorisations are due to take place—the first ones by the end of this year.

The FCA has also introduced tough new rules to protect consumers in the debt management sector, and the FCA actively monitors that market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. The FCA requires that all advertisements and other promotions must be clear, fair and not misleading, and it is able to impose tough sanctions where wrongdoing is found.

Regarding the noble Lord’s specific points about unsolicited marketing, the financial promotions regime applies to those providing debt management services. The FCA requires that unsolicited marketing by phone, text or email makes clear both the identity of the firm and the purpose of the communication so that the consumer can decide whether to proceed. This was highlighted by the noble Lord, Lord Sharkey.

The FCA also requires regulated debt management firms that accept leads from lead generators to satisfy themselves that business has been procured fairly and in accordance with data protection and privacy in electronic communications law. More broadly, in 2014 the Department for Culture, Media and Sport published its Nuisance Calls Action Plan. This set out the actions being taken by government, regulators, consumer groups and industry to tackle nuisance calls.

Importantly, the FCA has already committed to undertake a review of unsolicited marketing calls, emails and text messages from consumer credit firms, which will begin early next year. The Government believe that requiring the FCA to take a particular course of action before this review has taken place would limit the FCA’s ability to exercise its powers independently and would not necessarily achieve the desired result.

In answer to the question, “Why not act now?”, asked by the noble Lord, Lord Tunnicliffe—and I think that the noble Lord, Lord Sharkey, implied that even if he did not say it directly—it is worth noting that, if additional requirements for debt management firms were introduced at present, those firms would be required to alter their internal processes. That would cause disruption to the FCA’s ongoing authorisation process, which is due to begin producing results within the next couple of months.

I shall take advantage of the offer from the noble Lord, Lord Tunnicliffe, to write to him on the caller ID review timetable, because I do not have that to hand.

In summary, the authorisation process is well under way and will not take a year, and the FCA review of unsolicited marketing calls will begin early next year, so I submit that the noble Lord’s amendment is not appropriate at this time. I therefore ask him to withdraw it, confident in the knowledge that he will continue to hold the Government to account on this subject.

Lord Sharkey: I thank the Minister for that answer, a lot of which was, as I knew it would be, very encouraging. There remains just one issue. This is going to take some time, during which a substantial number of people will be exposed to risk. I think that

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that is unnecessary. The mortgages example suggests that we can, without interfering with the FCA’s processes, do something simple and quick now to stop this abuse. Having said that, I beg leave to withdraw the amendment.

Amendment 25 withdrawn.

Clause 22 agreed.

Amendment 26

Moved by Baroness Drake

26: After Clause 22, insert the following new Clause—

“Extending a duty of care to the financial sector

In every contract to supply a service, traders who are ring-fenced bodies providing financial services as defined under section 142A of the Financial Services and Markets Act 2000 (ring-fenced body) shall be subject to—

(a) a fiduciary duty to their consumers and small businesses with respect to provision of—with reasonable care and skill, and

(i) the operation of care services, and

(ii) the management of any individual contract to provide services,

with reasonable care and skill, and

(b) a duty of care towards consumers and small businesses across the financial services sector.”

Baroness Drake (Lab): My Lords, in this amendment I return to an argument that I have articulated in this House before. Culture and conduct in the banking sector were integral to the explanation for the financial crisis in 2008 and there is no compelling evidence that the culture has changed sufficiently. As the Financial Services Consumer Panel commented:

“The financial services industry has a long and ignoble history of poor treatment of consumers”.

The recent foreign exchange riggings saw banks fined £4 billion for deliberately misleading customers. Fixing the market was still happening a full five years after the financial crisis. Now we read in the CMA report on the £16 billion current account markets that millions of customers who regularly use their overdraft get a poor deal. In effect, the law still does not protect customers sufficiently.

The purpose of this amendment is to ensure that providers must put the consumers’ interests first and resolve conflicts of interest in the interest of the customer when providing core services and in the management of any contract to provide services. Profit should not be made at the expense of the customer through their lack of knowledge and consent.

A fiduciary duty of care, as contained in this amendment, is needed for two reasons: first, to force the pace of cultural change in the banking sector, and, secondly, because regulation still enshrines too weak a duty to the consumer. Massive fines are simply not delivering the desired behavioural change, but they add to the cost for consumers and raise concerns about sustainability. A regulatory focus on sufficient providers in the market and a reliance on the power of the disclosure of information are simply not delivering the required consumer outcomes.

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The markets are becoming more complex. Governments will continue to react to rather than prevent problems unless a step change is taken in defining the duties expected of providers towards consumers.

The FCA’s Treating Customers Fairly initiative enshrines a weaker duty to the consumer, arguably rendered weaker by the Financial Services and Markets Act, which requires the FCA to have regard to,

“the general principle that consumers should take responsibility for their decisions”.

Indeed, the Financial Services Consumer Panel September 2015 briefing provides a well-argued presentation on that very point.

The complexity of many financial services, combined with weak standards of governance, conflicts of interest, inappropriate remuneration structures, asymmetries of information, knowledge and understanding between the provider and consumer, behavioural biases, and unequal power between consumers and providers, has resulted in an extremely unbalanced relationship. Given that imbalance of power, consumers can reasonably be expected to take responsibility for their decisions only where provider firms exercise a fiduciary duty of care. Regulation does not explicitly create a requirement for firms to act in their customers’ interests or to eliminate conflicts of interest in the consumers’ interests.

The need to balance consumers’ responsibility with greater firm responsibility is not new. The Joint Committee on the draft Financial Services Bill commented in 2011 that,

“a statutory duty should be placed on firms to treat their customers ‘honestly, fairly and professionally’”,

allowing the FCA to ensure that,

“companies address conflicts of interest”.

The then FCA said that it supported a general principle that a regulated firm should act honestly, fairly and professionally, in accordance with the best interests of the consumer.

The Financial Services and Markets Act as amended by the Financial Services Act 2012 requires the FCA to,

“have regard to … the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate”.

The Government argued at the time that this provision would ensure fairness, honesty and professionalism. This intended effect is clearly not being achieved in many instances in practice.

Some argue that a fiduciary duty requiring providers to put customers first would impose an obligation to act in the best interests of customers to the exclusion of the firm and its shareholder’s interests. My response to that is that no financial organisation or its share- holders should have the right to a profit where, integral to the design of a product or service and the manner of managing that product or service, is a disregard or neglect of the consumer’s interest. Without this principle asserted as the bedrock to regulatory rules we continue to lock dysfunctionality into the financial and banking sector which will continue to manifest itself. That is not good for the UK when we have such a high dependency on the sector, providing as it does

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£65.6 billion, or 11% of total government receipts, and nearly £127 billion in gross value added to the UK economy.

3.45 pm

The duty in the amendment would also assist prudential concerns of sustainability, as the cultural shift will protect capital reserves from being depleted by future fines or compensation. Compensation for the PPI scandal now totals over £24 billion; penalties for foreign exchange rigging exceeds £6 billion; and small firms have received nearly £2 billion in compensation for mis-sold interest rate hedging products, to name but a few. The list is longer.

My argument is not that the Government are not addressing culture and conduct; rather that they are not addressing it sufficiently. Sometimes it is difficult to separate prudential and conduct issues or to understand if the sustainability of a financial organisation is placed ahead of fairness to the customer. If pursuing the customers’ interests when they have been treated unfairly means that a financial organisation becomes unsustainable, then prudential considerations may trump that. On legacy issues that may be a reality in order not to create a bigger problem, but for a future long-term sustainability we cannot go on like that; we need a more fundamental amendment.

Some observers are concerned that 2008 is fading from memory. The reference to a new settlement in the Chancellor’s 2015 Mansion House speech has been followed by changes to the bank levy; the non-retention of Martin Wheatley as chair of the FCA; the weakening of the ring-fence between retail and investment banking by relaxing restrictions on banks making loans and paying dividends from their retail to their investment arms; and the removal of the reverse burden of proof on executives who preside over misconduct, which was debated at some length on Amendment 21.

The senior managers and certification regime is being introduced, requiring that senior managers should be subject to a duty of responsibility to take reasonable steps to prevent a regulatory breach from occurring. Protecting financial system resilience is a mandate of the PRA which is often equated with enhancing banks’ ability to absorb external shocks. However, that is inseparable from the need to reduce the banks’ tendencies to generate those shocks in the first place—and that comes from the nature of the conduct and the culture in many instances.

At the heart of sustainability must be changing culture, conduct and responsibility to the customer. That requires that the duty of responsibility that senior managers bear under the senior managers and certification regime be underpinned by a judiciary duty of care.

To the public, debates about the banks appear dense and overtechnical. When I say to colleagues, “I am in the Bank of England debate today”, they look as though I am some strange monster who is obsessed with technical details because, although the banking system is so important to them and the economy, it is so complex and ununderstandable that they feel that they cannot participate. But for ordinary people, the intent of this amendment is straightforward. It means that providers must answer two questions when selling and managing products and services: not only “Can

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you do it?”, but also “Should you do it?” when looked at from the point of view of the interests of the consumer. I beg to move.

Baroness Kramer: My Lords, I do not think that I can improve on anything that has been said by the noble Baroness, Lady Drake, because she understands these issues with such clarity and works so extensively in this field. In a strange way, the noble Lord, Lord Hunt, made the argument for how a duty of care should be at the heart of everything that banking institutions and financial institutions do. I hope very much that the Government will take on board the importance of embedding these kinds of responsibilities deeply within the requirements for the financial services industry.

Lord Tunnicliffe: My Lords, what became evident both during and after the crash was that financial providers had failed to exercise any duty of care towards consumers across the sector that the industry is supposed to serve. The amendment before us was previously moved by my noble friend Lady Hayter, and I draw largely on her experiences as a member of the Financial Services Consumer Panel. The cases she worked on during her time at the FSCP were, among others, high loan-to-value mortgages and high loan-to-income mortgages. This was plainly about selling products to people who could not afford them with no consideration of their interests. This was done in spite of the fact that should circumstances change, those people would have no way of repaying their loans. As time went on and the number of loans increased, each one as reckless as the last, no account was taken of the hurt to individual borrowers or of the far wider group of consumers whose house prices fell in the subsequent crash, while future loans dried up and repayment terms became unsustainable.

The amendment would ensure that financial services had a duty of care to their consumers collectively as well as on a one-to-one basis with their clients. Case law provides for a duty of care across the financial services sector, but it is clear that that is not enough. Despite this, the Government have continued to resist writing it into legislation and have relied only on case law. The first part of the amendment would establish a fiduciary duty that would demand a higher standard of care for direct consumers, and the second part would extend that general duty to all consumers across the sector. This would fill a gap which currently exists in the financial services sector. If it were to be introduced alongside the new extended senior managers and certification regime, it could bring about a cultural change in the financial services sector that the Government, the Treasury Select Committee and the Bank of England have all said is necessary.

The experience of many of us of the financial sector has moved from a position where as a generality we expected that we could trust the industry with our money and for appropriate advice. The crash has completely destroyed that trust, so an amendment like this, if accepted, could help to bring it back. Confidence in the sector remains dangerously low and something has to be done to restore it. Perhaps this duty of care would provide a route back to public trust.

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Lord Bridges of Headley: My Lords, I thank the noble Baroness, Lady Drake, for prompting this short debate and for her thoughtful and thorough speech on the subject. As she rightly says, we need to improve the way the financial services industry treats its customers. We all want to see better standards in the banking and financial services industries, and to ensure that the customer always comes first. The question before us, however, is whether this amendment would achieve that. I am sorry to say that I am not at all convinced that it would—and I am conscious that your Lordships have been around this issue before, not least in 2013. I read the Hansard report of that debate yesterday. None the less, let me clarify the Government’s position.

The Government do not consider that introducing a fiduciary duty or a duty of care in legislation would help to drive up standards within ring-fenced banks because, as noble Lords know, banks are already subject to a wide range of legal duties. First, a bank is subject to obligations under the Financial Services and Markets Act 2000 and the regulators’ rulebooks. Under the latter—the principles for business—firms are required to act with due skill, care and diligence, and to pay due regard to the interests of its customers and treat them fairly The enforceable rules of conduct that will apply to banks under the SM&CR, to which the noble Baroness referred, will put the same requirements on the vast majority of bank employees, complementing the obligations on the firm, requiring them to give due regard to customers’ interests and to treat them fairly.

In addition, ring-fenced banks are subject to obligations under their contracts with their customers. These include implied terms—under Section 13 of the Supply of Goods and Services Act 1982 or Section 49 of the Consumer Rights Act 2015, where the consumer is not an SME—that the ring-fenced body will perform the service with “reasonable care and skill”. So, it is not clear that imposing a fiduciary obligation on a bank to their customers or small businesses would add any value. I would argue that a fiduciary obligation is not appropriate in the relationship that a bank has with the majority of its customers. It is a specific kind of obligation that a director owes to a company, or a trustee owes to a beneficiary under a trust.

It would be appropriate for a bank to have such an obligation when it was acting as a custodian, and such obligations can and do arise quite naturally in such circumstances. But, and this is the point, deposits with a bank are not property held on trust, so a fiduciary obligation simply would have no place in the contractual relationship between a bank and its customer—for instance, in a sales relationship. Clearly, it would be meaningless where the bank has lent the customer money.

Some time ago—noble Lords may not remember this, as it was in 1848—the case of Foley v Hill held that the relationship between a bank and its customer was that between a debtor and a creditor: a contractual, not a fiduciary, relationship. It was therefore not within the jurisdiction of the court of equity.

Furthermore, a fiduciary duty, even if it were to be imposed, could only deliver change if it was enforceable. Only the beneficiaries—the consumers and small businesses—could enforce it. This would obviously be

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expensive, requiring court proceedings, and would only produce financial compensation. The Government firmly believe, therefore, that the amendment would not add anything to the duties that already apply to ring-fenced bodies. Rather, it would add confusion where there is clarity. Banks can comply more easily with specific requirements, and customers and regulators can more effectively hold the bank to account when they do not comply.

I declare an interest here. I spent much of the last few years trying to ensure that one of the country’s largest high-street banks treats its customers fairly and earns their loyalty. In the light of that experience, I point out that the high level of competition and choice that now exists, and the increasing ease with which consumers can switch accounts, makes it even more imperative for banks to treat their customers not just fairly but personally and with real integrity.

This amendment would not improve on the regulations that already govern banks’ relationships with their customers. It would not give banks or their senior managers a clear understanding of what is expected of them, or provide a viable and effective means of holding banks to account. I therefore ask the noble Baroness to withdraw it.

Baroness Drake: I thank the Minister for his reply, and I will not enter into iterative debate on a fiduciary duty, other than to say that I will persistently argue from these Benches that the UK’s regulatory framework is inadequate for the consumer. Slowly but surely, in certain areas such as the introduction of independent governance committees in the insurance sector which embrace a fiduciary responsibility, there is a growing recognition that the current regulatory framework is not delivering the right response to behaviours in the banking and financial sector. Yet more layers of sedimentary rock in the regulatory system will not deliver that. None the less, I beg leave to withdraw my amendment.

Amendment 26 withdrawn.

Clause 23 agreed.

4 pm

Amendment 27

Moved by Lord Ashton of Hyde

27: After Clause 23, insert the following new Clause—

“Enforceability of agreements relating to credit

(1) Section 26A of the Financial Services and Markets Act 2000 (agreements relating to credit) is amended as follows.

(2) In subsection (4)—

(a) the words from “has” to the end become paragraph (a);

(b) after that paragraph insert—

“(b) is an appointed representative in relation to that activity,

“(c) is an exempt person in relation to that activity, or

(d) is a person to whom, as a result of Part 20, the general prohibition does not apply in relation to that activity.”

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(3) In subsection (5)—

(a) the words from “the agreement” (in the third place they occur) to the end become paragraph (a) (and the existing paragraphs (a) and (b) become sub-paragraphs (i) and (ii) of that paragraph);

(b) after that paragraph insert—

“(b) that person is an appointed representative in relation to that activity,

“(c) that person is an exempt person in relation to that activity, or

(d) that person is a person to whom, as a result of Part 20, the general prohibition does not apply in relation to that activity.””

Lord Ashton of Hyde: My Lords, government Amendments 27 and 28 make some minor and technical changes to the Financial Services and Markets Act 2000 in relation to the regulation of consumer credit. The Government fundamentally reformed consumer credit regulation, transferring responsibility from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014.

The FCA regime is already having a substantial positive impact and is helping to deliver the Government’s vision for an effective and sustainable consumer credit market which is able to meet consumers’ needs. The amendments considered today are, as I have already said, technical in nature. They concern the application of provisions relating to the enforceability of agreements.

Amendment 27 amends subsections (4) and (5) of Section 26A of the Financial Services and Markets Act 2000, which concern the enforcement of credit agreements by persons acting on behalf of the lender, either by administering the agreement or by collecting debts under the agreement. This amendment makes it clear that a consumer credit agreement may be enforced by anyone who is able to carry on a credit-related regulated activity lawfully under the Financial Services and Markets Act 2000. This includes firms that are exempt from the need to have FCA authorisation to carry out these activities either because the firm has an individual exemption or because it is entitled to an exemption as a member of a designated professional body. It also includes appointed representatives of authorised persons.

The current provision requires the person to have a relevant permission under the Act. The amendment clarifies that this is not limited to persons who are directly authorised by the FCA but also includes persons who are exempt from needing authorisation either by virtue of a specific exemption or because they are appointed representatives or members of a designated professional body. In such cases, the person does not need FCA authorisation, provided that, in the case of an appointed representative, another firm with the relevant debt collecting or debt administration permission takes responsibility, as principal, for their activities and compliance with FCA regulations. In the case of designated professional bodies, if the FCA has approved the professional body’s rules under Part 20 of FSMA, and these cover debt collecting or debt administration, then members of the body can carry on those activities without needing direct authorisation from the FCA, provided that they do not engage in regulated activities which are outside the scope of the

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Part 20 permission. It was always the Government’s intention that subsections (4) and (5) of Section 26A should cover such persons, but the amendment puts this beyond doubt.

Government Amendment 28 amends Section 27 of FSMA, which deals with agreements made through unauthorised persons. Subsection (1) of Section 27 provides that an agreement made by an authorised person carrying on a regulated activity is unenforceable where it is made in consequence of something said or done by a third party in circumstances where that third party should have had, but did not have, permission. In the case of consumer credit and hire agreements, this could potentially cover any credit broker in what could be a long chain of multiple brokers, even if the provider is not aware of the particular third party or their involvement in the transaction.

This is in contrast to the position under the Consumer Credit Act 1974 prior to the transfer of regulation from the OFT to the FCA. Section 149 of that Act, which was repealed as part of the transfer, limited unenforceability to situations where the introducing broker was unlicensed and it was immaterial whether any other broker in the chain was unlicensed. The amendment would ensure that Section 27 is proportionate for consumer credit lenders and consumer hire providers in the context of the consumer credit market, where chains of credit brokers are often involved in bringing together the consumer and the lender.

Specifically, the amendment would ensure that this applies only if the provider knows—before the agreement is made—that the third party, such as a credit broker, had some involvement in the making of the agreement or in matters preparatory to its making. In such cases, if the broker is acting in breach of the general prohibition, the agreement will be unenforceable against the consumer, as is currently the case. However, if the provider is unaware of the broker’s involvement, the fact that it did not have permission when it should have done would not in itself make the agreement unenforceable.

The Government believe that this strikes the right balance between protecting consumers and ensuring that burdens on firms are reasonable and proportionate. I beg to move.

Lord Davies of Oldham: My Lords, we consulted the Financial Services Consumer Panel on these amendments, and it confirmed that they were entirely technical. As I always take the panel’s advice, I think they are technical and agree with the Minister.

Lord Ashton of Hyde: I am grateful to the noble Lord.

Amendment 27 agreed.

Amendment 28

Moved by Lord Ashton of Hyde

28: After Clause 23, insert the following new Clause—

“Enforceability of credit agreements made through unauthorised persons

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(1) Section 27 of the Financial Services and Markets Act 2000 (agreements made through unauthorised persons) is amended as follows.

(2) After subsection (1) insert—

“(1ZA) But this section does not apply to a regulated credit agreement or a regulated consumer hire agreement unless the provider knows before the agreement is made that the third party had some involvement in the making of the agreement or matters preparatory to its making.”

(3) In subsection (1A) for “The agreement” substitute “An agreement to which this section applies”.

(4) After subsection (4) insert—

“(5) For the purposes of subsection (1ZA)—

“regulated consumer hire agreement” has the meaning given by article 60N of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“regulated credit agreement” has the meaning given by article 60B of that Order.””

Amendment 28 agreed.

Amendment 29

Moved by Lord Ashton of Hyde

29: After Clause 23, insert the following new Clause—

“Transformer vehicles

(1) The Financial Services and Markets Act 2000 is amended as follows.

(2) After Part 17 insert—

“Part 17ATransformer Vehicles

284A Transformer vehicles

(1) In this section “transformer vehicle” means an undertaking (“A”) which—

(a) is established for the purposes of carrying on the activities mentioned in subsection (2), or

(b) carries on those activities.

(2) The activities referred to in subsection (1) are—

(a) assuming risk from another undertaking (“B”), and

(b) fully funding A’s exposure to that risk by issuing investments where the repayment rights of the investors are subordinated to A’s obligations to B in respect of the risk.

(3) The Treasury may by regulations make provision for facilitating, and provision for regulating—

(a) the establishment and operation of transformer vehicles;

(b) the activities mentioned in subsection (2);

(c) the trading of investments issued by transformer vehicles.

(4) Regulations under subsection (3) may (amongst other things) make provision—

(a) for the incorporation and registration in the United Kingdom of bodies corporate;

(b) for a body incorporated by virtue of the regulations to take such form and name as may be determined in accordance with the regulations;

(c) as to the purposes for which such a body may exist and the investments which it may issue;

(d) as to the constitution, ownership, management and operation of such a body;

(e) for such a body to comprise different parts;

(f) for such parts to have legal personality distinct from that of the body;

(g) as to the holding and management of the assets and liabilities of such a body, including provision for the segregation of assets and liabilities relating to different risks;

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(h) as to the powers, duties, rights and liabilities of such a body and of other persons, including—

(i) its directors and other officers;

(ii) its shareholders, and persons who hold the beneficial title to shares in it without holding the legal title;

(iii) its auditor;

(iv) any persons holding assets for it;

(v) any persons who act or purport to act on its behalf;

(i) as to the merger of one or more such bodies and the division of such a body;

(j) for the appointment and removal of an auditor for such a body;

(k) as to the winding up and dissolution of such a body;

(l) enabling the FCA or the PRA to apply to a court for an order removing or replacing any director of, or person holding assets for, such a body;

(m) for the carrying out of investigations by persons appointed by the FCA or the PRA.

(5) If regulations under subsection (3) make the provision mentioned in subsection (4)(e) references in subsection (4) to a body include its constituent parts.

(6) Regulations under subsection (3) may—

(a) impose criminal liability;

(b) confer functions on the FCA or the PRA (including the functions of making rules and giving directions);

(c) authorise the FCA or the PRA to require the Council of Lloyd’s to exercise functions on its behalf (including functions conferred otherwise than by the regulations);

(d) confer jurisdiction on any court or on the Tribunal;

(e) provide for fees to be charged by the FCA or the PRA in connection with the carrying out of any of their functions under the regulations (including fees payable on a periodical basis);

(f) modify, exclude or apply (with or without modifications) any primary or subordinate legislation (including any provision of, or made under, this Act);

(g) make consequential amendments, repeals and revocations of any such legislation;

(h) modify or exclude any rule of law.

(7) The provision that may be made by virtue of subsection (6)(f) includes provision extending or adapting any power to make subordinate legislation.

(8) Regulations under subsection (3) may provide that a reference in the regulations to, or to any provision of, legislation (including an EU instrument and legislation of a country or territory outside the United Kingdom), is to be construed as a reference to that legislation or that provision as amended from time to time.

(9) In this section—

“investment” includes any asset, right or interest;

“primary legislation” means an Act, an Act of the Scottish Parliament, a Measure or Act of the National Assembly for Wales, or Northern Ireland legislation;

“subordinate legislation” means an instrument made under primary legislation.

(10) If a statutory instrument containing regulations under this section would, apart from this subsection, be treated as a hybrid instrument for the purposes of the Standing Orders of either House of Parliament, it is to proceed in that House as if it were not a hybrid instrument.”

(3) In section 429(2) (regulations subject to the affirmative procedure), after “262,” insert “284A,”.”

Lord Ashton of Hyde: My Lords, Amendment 29 introduces a power into the Financial Services and Markets Act 2000 for the Treasury to make regulations relating to transformer vehicles. Transformer vehicles

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are used for risk-mitigation purposes, particularly in the insurance and reinsurance industry. The Government plan to use this power to implement a new framework for insurance-linked securities business.

In an insurance-linked securities transaction, an insurer contracts with an entity specifically established to take on insurance risk. These entities come within the definition of “transformer vehicles” in the amendment. The insurer transfers risk to the transformer vehicle and the vehicle raises collateral to cover that risk by issuing securities to capital market investors. The vehicles exist solely to transform risk into capital market instruments and to compensate the insurer should the insured event take place. Investors receive a return from the premiums paid by the insurer and the collateral is returned to investors if the insured event does not take place. Unlike conventional reinsurers, ILS transactions do not pool risk. The transformer vehicle takes on a specific risk and typically holds collateral that is at least equal to the risk transferred. This key safeguard will be a firm requirement in the UK framework. The framework will ensure that insurers can rely on the protection they arrange through ILS deals.

Insurance-linked securities are now an important and growing part of the global specialist reinsurance market. By enabling insurers to access the capital markets as an alternative way of reinsuring risk, this business has brought additional capacity to parts of the reinsurance market. But despite the importance of London as a global insurance hub, that growth has taken place elsewhere. In London Matters, a report by the London Market Group on the competitiveness of the London insurance market, the UK’s out-of-date regulatory framework for insurance-linked securities was highlighted as inhibiting London’s ability to compete as a reinsurance hub.

Therefore, the March 2015 Budget announced that the Treasury, the PRA and the FCA would work closely with the London market to develop a more effective framework for insurance-linked securities business. The London market established the insurance-linked securities task force, which is working with the Treasury and the financial regulators to design a fit-for-purpose regime. Work is ongoing, but it is clear that the Financial Services and Markets Act needs to be amended to provide for the introduction of detailed regulations which will implement the new framework. In particular, the Government intend to use the power to create a bespoke corporate structure for transformer vehicles which assume risk from insurers and reinsurers. This will ensure that these vehicles are robust and managed in a way so that they can meet their obligations to insurers and investors. Given that this is a rapidly evolving market, the power will enable the Treasury and financial regulators to keep the regulatory framework up to date.

The clause enables the regulatory arrangements of Lloyd’s of London to be updated, should that be needed to facilitate the Lloyd’s market adapting to ILS business or the use of transformer vehicles. If this requires amendments to the Lloyd’s Acts then the regulations concerned will be dehybridised, so that the amendments are not delayed in Parliament by the hybrid procedure. I am grateful to the Delegated Powers Committee for its report on this clause, which recommends

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that the clause be amended to ensure that the consent of the council of Lloyd’s is needed before the FCA or PRA can be enabled to require the council to carry out functions on their behalf. I fully understand that the committee would want to be reassured that those affected by the use of a dehybridising provision are afforded an alternative protection. The Government will therefore give careful consideration to the committee’s report.

Although the Government’s current plan is to introduce a framework focused on the insurance industry, it is possible that the use of transformer vehicles by non-insurance entities, for example a company seeking to mitigate the longevity risk associated with an employee pension scheme, may become more common in the future. The power provides the flexibility for regulation to keep pace with such market developments, should that be required.

Finally, I am pleased to say that the London Market Group, which represents London’s insurers and reinsurers, has welcomed this first step in implementing a new framework for ILS business. I beg to move.

Lord Davies of Oldham: My Lords, it is third time unlucky for the Government because we do not consider these amendments to be entirely technical and they contain some aspects on which we seek clarification. The Minister has already recognised the significance of the report by the Delegated Powers and Regulatory Reform Committee, which I know will be studied with care. I make the assumption that the Government will come back before or on Report with a clear response to the committee’s conclusions. If the Government do not act on them then I can assure the Minister that we will, as the committee was quite clear that it thought there should be an amendment to the legislation.

The noble Lord, Lord Ashton, has already indicated the extent to which the Government have looked at the issue in relation to the council of Lloyd’s. I therefore hope that we will have clarity on this matter on Report. We will of course look at his remarks today with the greatest care. I give the obvious indication that while we will not object to these amendments at this stage, we will be coming back to this issue and, more accurately, we hope that the Government will be coming back to it as well.

Lord Ashton of Hyde: My Lords, I note what the noble Lord has said and, as I said before, we are considering this carefully. As I think I indicated, we accept what the Delegated Powers and Regulatory Reform Committee has said. We are looking carefully at this and a response will be forthcoming before Report.

Amendment 29 agreed.

4.15 pm

Amendment 29A

Moved by Lord McFall of Alcluith

29A: After Clause 23, insert the following new Clause—

“Listings rules sustainability report

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(1) Within one year of the coming into force of this Act, and annually thereafter, the Financial Conduct Authority shall prepare and publish an assessment of how listings rules contribute to the UK’s sustainable economic growth.

(2) In this section, “listings rules” means rules deriving from Part 6 of the Financial Services and Markets Act 2000, and rules governing markets designated as recognised growth markets by HMRC.”

Lord McFall of Alcluith (Lab): My Lords, I rise to move the amendment in the name of my noble friend Lady Worthington who, unfortunately, cannot be with us today. Amendments 29A and 29B seek to introduce two new clauses, “Listing rules sustainability report” and “Power to require long-term sustainability reporting”.

In a Bill that deals with financial services, we would be remiss if we did not debate how we can best promote the long-term sustainability of an industry that contributed almost £127 billion of gross value added to the UK economy and supported 1.1 million jobs directly and indirectly in 2014.

Both these amendments are probing amendments. Amendment 29B would require the specification of accounting standards for the disclosure of exposure to the financial risks associated with climate change—an issue that Governor Carney has spoken about very recently. Amendment 29A sets out a requirement for the listings authorities to report on how the rules arrangements governing our financial markets relate to sustainable growth.

The need for the effective disclosure of the carbon intensity of assets is widely supported, and according to the Bank of England there are already 400 such schemes internationally. The problem is that each initiative varies in status, scope and ambition, and as Governor Carney has said recently,

“The existing surfeit of schemes and fragmented disclosures means a risk of getting ‘lost in the right direction’”.

Amendment 29B calls for uniformity and clarity of reporting standards so that our financial services industry has the right information to make the right decisions when investing clients’ money.

The UK is uniquely placed to lead on this issue, given the size and importance of our financial services industry. That is why it is important that we look at all means to ensure its long-term sustainability. Amendment 29A does this by asking the FCA to prepare a report into the effect of listings rules on sustainable growth. In particular, it would shine a light on to our “recognised growth markets”, such as the Alternative Investment Market.

The AIM is designed to support new, high-growth and innovative enterprises which would otherwise struggle to meet the requirements to list on the main market, and it encourages investment with income tax, capital gains tax, stamp duty and inheritance tax reliefs. However, this market also allows well-established extractives to list their shares here, avoiding tougher regulation and allowing companies such as Coal of Africa—an Australian mining firm with a history of sacking striking workers—to list its securities on that market. In a time of austerity, we should be looking at the regulation of our financial services industry and markets to ensure that they are encouraging the sustainable growth that we need. I ask the Minister to consider these amendments.

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Lord Deben (Con): My Lords, I hope that the Government will think carefully about these proposals. I declare an interest, and therefore perhaps some knowledge of this, in the sense that I am chairman of the Association of Independent Professional Financial Advisers, am on the board of Castle Trust and also look after the Association of Mortgage Intermediaries, so this is an area in which I have a particular interest.

First, I say to the Committee that proper reporting is a crucial part of ensuring that we get changes in the world in which we live. Transparency has been brought to us partially because of the internet—we now expect to know and to be able to judge on what we know. I hope that the Government recognise that this is not an additional burden, because any financial business ought to be thinking about these things. It is not acceptable that people should carry on business without asking themselves, “Is what I do sustainable?”. If they do carry on business without thinking about that, it seems to me that it is not very good for the business. In other words, this is not a burden in the sense that we are asking business to do something that would not contribute to its own success; we are asking it to do something that is essential for its own success, and I am sorry that the industry itself has not come to the Government with its own scheme about how it should do that, because it is crucial for the future.

Secondly, when you talk to people in the financial world about these issues, they recognise them. Many of them are increasingly concerned that they should use their financial strength to promote and protect the future not only of their own businesses but of Britain, Europe and the whole globe. I think that there is a readiness to accept such a measure.

Thirdly, there is nothing that is as damaging in this area as a whole series of different ways of reporting different bits of information, so that people—sometimes without very good reason or sometimes with another agenda—can make false comparisons, because the comparisons are so difficult. It is in the interests of the industry that there should be some basic, simple and clear way of comparing one business with another.

The fourth thing that seems to me to be important is that we should recognise what a crucial role the financial services industries play in the promotion of sustainability. Choices that they make today will make a huge difference tomorrow; the choices that they make today will make an even bigger difference the day after tomorrow. We need thinking which is long term. I have been asked to speak at a whole series of meetings recently, put on not by those who are concerned with sustainable investment or socially responsible investment but by straightforward, ordinary investment businesses which believe that this is the route down which they have to go. We are not pushing people to do things that they do not want to do; we are making sure that what they do is comparable, usable and helpful. So this is an important measure for that purpose.

The last reason why I want to ask the Government to think seriously about this proposal is very simple: we need to think about these matters in every aspect of our lives. We cannot deal with the issues of climate change in particular or of environment more generally

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if we think that they are the perquisite of the Department of Energy and Climate Change, of Defra or even of the Department for Transport; this has to be part of what we do naturally, inevitably, all the time when we make decisions. We have to get into that mode and that mood. Therefore, I would hope that we were thinking of doing these things in a lot of other areas when we come to them.

However, we must make sure that people are not misled. I do not want to rub salt into the wounds, but the recent Volkswagen debacle reminds us how dangerous it is if we mismeasure. Measurement is a crucial part of making sure that people do things. If it is not measured, it is not done—we know that; if it is mismeasured, then it is done badly. We are trying here to suggest to the Government that ensuring that there is a sensible way of reporting what people are doing is a vital part of this legislation.

I commend to my noble friend the action of the Government on modern slavery. I do not think that there is any doubt that on all sides of the Chamber we have welcomed the Modern Slavery Act. What that Act does is tell people that they have to report what they have done to avoid modern slavery in their supply chain. That is very similar and parallel to what we are asking for here: to give the public, the campaigners and the people who care information which they deserve and ought to have.

I end by reminding my noble friend that a recent study done on behalf of the Navy discovered that there was very little difference in the way that people got information, and what they expected to get, between officers and men, men and women, and people based here in Britain and those based abroad. The one difference was between those under 30 and those over 30. Those who were under 30 expected to be able to know. This was done some years ago, so I suspect it is now those under 35, but the fact is that the internet generation does not understand why anybody does not understand that they want to know. If you ask people of that age, they do not understand why you—referring to me rather than my noble friend—do not expect information to be available. This is the world we live in.

I hope the Government will take these propositions very seriously. It may not be the right amendment and there are some bits of it that I think I would rewrite—all sorts of things might be improved, and the noble Lord who moved it on behalf of the noble Baroness would probably agree that we should settle for a different phraseology. However, we want to make sure that everybody making decisions in the financial services area recognises that they are making them in this context and reports them so that others can see that they have taken those decisions not lightly or for short-term reasons but in the context in which we all live—a world which is threatened by the most catastrophic danger that we have knowingly faced in our history.

Baroness Kramer: My Lords, I support the amendment in the name of the noble Baroness, Lady Worthington, and the comments of the noble Lords, Lord McFall and Lord Deben. The amendment addresses an issue which the Government now have to take seriously. The speech of the noble Lord, Lord Deben, reminded me

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of the old adage: “What you measure, you manage”. By measuring and reporting, which surely is not beyond any corporation of any size, we change the whole culture of short-termism which dominates at the moment throughout the financial services industry, and create the potential for many more players to start to look at the longer term and at issues of sustainability. Surely, when we have been doing so much to try to ensure financial stability, which is a long-term issue, backing that up with the kind of tools that are proposed in this amendment makes a great deal of sense.

I am very much a believer that one of the greatest risks that we face, if not the greatest risk, is climate change. However, we are also looking at a time when new technologies are disrupting the whole established structure, and we have to take that on board in some way. We are also looking at great population changes—migration and demographic changes—and this amendment seems to me to be rather good at highlighting that all those big, disruptive changes need to be captured to some extent in this reporting system.

I hope that the Government will take this seriously. I agree that no one takes particular pride in authorship of the language on these occasions, but this is about getting the principle properly embedded so that the Bank and the regulators can carry out their tasks in a way that deals not just with immediate risk but with the long term and encourage the financial services industry to play over that long-term arena as well. We have financial services businesses which are recognising the importance of long-term sustainability and are doing it exceedingly well, but it is very hard for them to communicate with potential investors when differences in reporting strategies and language make that communication so confused. Providing a level playing field in terms of reporting means that those who focus on this can get their message out and that investors to whom this is important can then shape their decisions based on that comparable information.

4.30 pm

Lord Davies of Oldham (Lab): My Lords, I endorse the remarks of my noble friend Lord McFall in introducing the debate on the amendments. My remarks are necessarily cut short because the noble Lord, Lord Deben, provided a great deal of the supportive evidence and arguments the Government ought to take seriously; we hope that they will.

There was a time, not so very long ago, when we prided ourselves on the extent to which this country was to the fore in being aware of the problems of climate change and taking the necessary action to reduce the frightening possibility of the rise in temperatures and general climate change, which would make such great difficulty for the whole world. I know that my noble friend Lady Worthington, who is, unhappily, not with us today, is very concerned that the French this year have taken steps that are somewhat in advance of what we have made so far. They passed a law requiring listed companies to disclose in their annual reports how exposed they are to the financial risks related to the effects of climate change, and what measures have been adopted by the company to reduce those risks. The law also requires pension funds, insurance companies and other institutional investors in France

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to disclose how they are managing climate change risk. This law makes France the first country in the world to introduce a carbon-reporting obligation on financial institutions.

Amendment 29B gives an indication of the road we could tread. I therefore hope that the Minister will at least commit the Government to creating a standardised set of questions that financial services providers must ask to gather and present information on companies and asset owners. The aim would be to make it easier to compare and assess risks to which companies may be exposed because of the impact of climate change. That is not asking too much of the Minister, in his more constructive mood, and I hope I will establish that point very shortly.

Lord Bridges of Headley: I always try to be constructive with the noble Lord, Lord Davies. I thank the noble Lord, Lord McFall, for introducing this amendment. It is a shame that the noble Baroness, Lady Worthington, is not with us. What strikes me from this interesting and useful discussion is that at issue is not whether we disclose more but how we do it in a meaningful way that people can understand and that is consistent.

Just taking a step back, as I outlined in my response to the noble Baroness, Lady Worthington, on Monday, I fully recognise that climate change, as well as demographic change and technological change, which she referred to, are important structural issues that could have a significant impact on not just financial stability but society more broadly. As my noble friend Lord Deben, who has a lot of experience in this field, said, climate change cannot be put into a silo and seen as the responsibility of one government department, nor, in a business, one part of the business. It needs to be seen as a common endeavour to tackle.

It is right, therefore, that the UK’s macroprudential authority should be alert to climate change as well as to the other long-term systemic risks that I mentioned and that it, and other parties, should have access to clear and sufficient information to make an educated assessment of those risks. As the noble Lord, Lord McFall, and others, are well aware, the Government have put in place legally binding, long-term commitments to reduce our greenhouse gas emissions in the Climate Change Act 2008, and we will be pushing strongly for an ambitious and global agreement on climate change at this December’s United Nations conference of parties in Paris, involving commitment by all countries to act. The steps that will be taken to meet these commitments will involve a range of adjustments to production and consumption across the global economy, and the Government fully recognise the importance of ensuring that this transition is as orderly as possible.

As the noble Lord, Lord McFall, said, the Governor of the Bank, in his capacity as the chairman of the Financial Stability Board, has already highlighted the risks that climate change could pose to financial stability—and, more pertinently to the amendment, the role that consistent, clear and comparable disclosure at international level could play in responding to those risks. As your Lordships will know, the Financial Stability Board has been actively considering these issues and recently, at the end of September, convened

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a workshop of public and private sector participants to consider how the financial sector should take account of climate-related issues.

Following that workshop, the FSB published for this month’s G20 summit a proposal for an industry-led task force on climate-related risks. The G20 will then recommend principles for climate-related disclosure. I do not want to prejudice that discussion but agree with the noble Lord that obviously more could be done with disclosure practices. As he rightly said, so many disclosures—ironically and perversely in an age where we want more information—could add to confusion and not add clarity. We look for added clarity and consistency.

In the light of the need for comparable information across countries, I would argue that this issue is rightly considered at that international level. That said, one may well ask what the Government are doing at a UK level. I point your Lordships to what happened last week when the Treasury concluded a written consultation on reform to the UK’s business energy efficiency tax landscape. This included questions related to greenhouse gas reporting, including a requirement under the Companies Act 2006 for quoted companies to report their greenhouse gas emissions as part of their annual directors’ report. As I said, that is out for consultation.

Lord Deben: Could my noble friend explain the logic that says that Britain moves on modern slavery to set an example by enforcing it at home before we have international agreement, but refuses to move on this because there is to be a discussion about international agreement? Would it not be better for us just to move on it and set the example? That would help guide the discussions that might take place thereafter.

Lord Bridges of Headley: As always, my noble friend makes a perceptive point. As I said, I do not want to prejudice the outcome of the discussions that will likely take place. Obviously, my noble friend makes a good point. I simply make the point in return that, in the case of disclosure, we want to try to make sure that this is as internationally recognised as possible. I heed what he said and will no doubt make that point to those who will be present at that discussion.

On primary issuances, the relevant regime is the prospectus directive—which is currently under review. We are working closely with the European Commission and other European partners to achieve a positive outcome on that. We look forward to hearing any suggestions on how to improve this regime. I thank the noble Lord—and the noble Baroness who sadly is not with us—for this amendment. I hope what I said gives some reassurance that the Government take this issue seriously, but I ask the noble Lord to withdraw the amendment.

Lord McFall of Alcluith: My Lords, I beg leave to withdraw the amendment.

Amendment 29A withdrawn.

Amendment 29B not moved.

Clause 24 agreed.

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Amendment 30

Moved by Lord McKenzie of Luton

30: After Clause 24, insert the following new Clause—

“Pensions guidance: review

The Secretary of State shall, before any regulations under section 333A(2A) of the Financial Services and Markets Act 2000, as inserted by section 24(3) of this Act, come into force—

(a) undertake and publish a review of—

(i) the progress of provisions enabling a person to access a cash balance or other money purchase benefits, and

(ii) the extent to which pension guidance has in practice empowered consumers to make informed and confident choices about their pension arrangements;

(b) introduce arrangements for establishing a research programme to track consumer outcome with respect to the pensions guidance;

(c) review the adequacy of reporting requirements for pension providers;

(d) strengthen safeguards against pension scams through the provision of misleading guidance or advice;

(e) clarify the distinction between pensions guidance and pensions advice;

(f) identify—

(i) the specific risks which consumers may face in the secondary annuity market, and

(ii) any improvements, additional safeguards and resourcing which are required for an extended pensions guidance service to help individuals make decisions in connection with transferring or dealing with the right to payments under an annuity.”

Lord McKenzie of Luton (Lab): My Lords, I should explain that this is a probing amendment at this stage. Indeed, it was prompted by Clause 24, which of course is an enabling provision to allow Pension Wise to be expanded in due course to cover guidance for a secondary annuity market. It also enables us to pursue issues that arise from the House of Commons Work and Pensions Committee report covering guidance and advice. This is not to revisit our support for the changes to the pension regime introduced from April 2015, although we previously expressed our concerns about the speed with which such a dramatic policy shift was introduced and the lack of consultation that would normally characterise such a change. I thank the Minister for his letter of 4 November that followed up on some matters raised at Second Reading and which, to an extent, overlaps with this amendment.

We welcome the announced delay to the introduction of the secondary annuity market until 2017, given the reported responses to the Treasury consultation, in particular because of expressed concerns about the potential costs of operating a scheme and the challenges of enabling an in-depth package of support for consumers making their decision—I will say more on this in a moment. The Bill makes reference to enabling guidance for “relevant interests” for “relevant annuities”. Perhaps the Minister can give us news of what these terms may cover or, at least, when we might expect some news.

The House of Commons Select Committee raised a number of concerns about the current arrangements. A key concern was the lack of data and, indeed, a

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reticence to publish statistics, which inhibits proper scrutiny of how the reforms are progressing. It recommended that Government should publish, or cause to be published on a quarterly basis, customer characteristics, including pension pot size and other sources of retirement income; take-up of each channel of guidance and advice; reasons for not taking up guidance and advice; subsequent decisions taken; and reasons given for those decisions. It will also be important to have a breakdown of the customer characteristic by gender and ethnicity so that there is a greater understanding of the differing impact of these changes.

The Minister’s letter suggests that Government will make “core” Pension Wise data available on the government performance platform “this autumn”. Can the Minister expand for us on what is to be covered by “core data” and whether they will satisfy the recommendations of the Select Committee that I have just outlined? The committee rightly concluded that the long-term effects of the new freedoms are uncertain and recommended that the Government initiate a rolling research programme to track the long-term consequences of consumer decisions. It is to be welcomed that research is to be undertaken on the immediate impact of a Pension Wise appointment on customers, but where does this leave the concept of a rolling research programme? Does the Minister agree that one is appropriate?

From what data there are, there seems to be a legitimate cause for concern about the take-up rates of the guaranteed guidance and suggestions that fewer than one in 10 individuals accessing their pension pot availed themselves of face-to-face or telephone advice. Given that the guidance guarantee was recognised as a fundamental component of the reforms and vital to help individuals make informed choices about their lifetime savings, is the Minister satisfied about the current state of play? Particular concern was recorded by Age UK and the Financial Services Consumer Panel about whether the system of pension providers giving risk warnings and signposting consumers to Pension Wise was operating as it should. There are suggestions that providers are following the letter rather than the spirit of their obligation—hence the recommendation that there should be a review of the obligations with a view to their being strengthened, particularly in the prominence given to communications. Will the Government encourage the FCA to strengthen its rules and guidance for pension providers concerning Pension Wise?

The Minister will be aware of the ongoing debate around the adequacy of just one session with Pension Wise and whether it really is sufficient to support people through their retirement. The expectation is that those with complex needs should pay for advice. For others, it seems they could dip in and out of engagement with the specialist services of TPAS, the Money Advice Service and Citizens Advice. Is this viewed by Government as a sustainable model? Confusion abounds, seemingly not just among consumers, about the distinction between advice and guidance, and we are reminded that the FCA January 2015 guidance seeking to clarify the boundaries of advice runs to 47 pages. Evidence suggests that individuals are very reluctant to pay the typical sums required for a session

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with an independent financial adviser, hence the need and hope for some middle ground between regulated advice and guidance. Progress on this will presumably have to await the outcome of the Financial Advice Market Review.

It is hard to read a newspaper or indeed watch a consumer TV programme these days without some reference to the rise of pension scams. Whether there has been an actual increase is, according to the Select Committee, a matter of some uncertainty, although the ability to access the whole of one’s pension pot has certainly created scope for the increase of such activity, given the ingenuity of unregulated businesses often based overseas.

4.45 pm

The Minister has written reassuringly about the focus of the Government and the regulators on this scourge, but the Select Committee recommended that a greater onus could be placed on providers when their customers are at the point of transferring funds away as well as on enhancing the publicity effort. Do the Government support this approach?

Finally, returning to annuities and the policy to enable those in receipt of them to sell the benefit in exchange for a cash sum or some income draw-down product, the consultation document issued in March highlighted a multiplicity of factors which need to be considered and why the Government, post the election, deferred its introduction. Issues for potential investors include the management of longevity risk, but for consumers there are also issues concerning the pricing of the annuity and the position of dependants, who will typically be women, and equality considerations.

There are also a host of practical issues concerning the administration of the policies and tracking the lives of annuitants, and the impact on benefits and social care arrangements of potentially swapping an income flow for a capital sum. The Bill enables the extension of Pension Wise so that guidance can be available, and we support that, but it will also be important to understand how advice will form part of the equation. All in all, given the ongoing challenges of managing the 2015 pension freedoms, not to mention the new state pension, we wonder why this should be such a priority, especially as, in the Government’s judgment, for most people retaining their annuity is likely to be the best option. I beg to move.