Financial Services Bill
Public Bill Committee, 19 November 2020.
Examination of Witness - Dr Susan Hawley gave evidence.
Philip Davies (Conservative, Shipley)
We will now hear from Susan Hawley, from Spotlight on Corruption, who is joining us remotely. I remind colleagues that we have until 12.15 pm for this session. Sue, please could you introduce yourself for the record?
Pat McFadden (Labour, Wolverhampton South East)
Thank you for giving us your time today, Sue. You have also given the Committee some written evidence, which I will come to in a second. Before I do that, I just want to let you know that a number of witnesses on Tuesday were more clearly focused on the European end of the Bill—the onshoring of various regulations—but with you we will probably concentrate more on the later clauses in the Bill. Before I come to your written evidence and your specific suggestions about financial crime, what is your general impression of the Bill?Q139
Pat McFadden (Labour, Wolverhampton South East)
May I come to your specific suggestions? You submitted written evidence that focuses on a suggestion for an amendment to the Bill on the prevention of economic crime. Could you talk us through your suggestion and where you think the Bill may have a gap to fill in that area?Q
Pat McFadden (Labour, Wolverhampton South East)
Q I have a couple of questions, and my colleagues might too. There are quite a lot of different parts to this, and I want to ensure that I understand properly what you are saying. You referred, I think, to a corporate offence. Is the first big point that you are making here that, although individual prosecutions may be rare—you are right that on LIBOR, for example, they were very rare—even then it tends to be the individual trader who gets prosecuted, rather than the organisation they were working for? The organisation they were working for can always say, “We didn’t know what he or she was doing,” and wash their hands of it. Is the first essential point you are making that you want to create a corporate offence rather than an individual offence whereby somebody goes to jail for a certain number of years for committing an economic crime?
Pat McFadden (Labour, Wolverhampton South East)
Q The other part I want you to explain a little more is that you said that small and large companies are treated differently under the law as it stands, and you implied that there is a greater sense of liability for small companies. Can you explain that a little more to us? What do you mean by that, and why is that the case?
Pat McFadden (Labour, Wolverhampton South East)
Q So there is almost an incentive for the board to be in ignorance, because that is a legitimate defence when wrongdoing is exposed in the company. Is that what you are saying?
Pat McFadden (Labour, Wolverhampton South East)
Q The final question I want to ask you is about what you said about equivalence. We had a series of bodies give evidence to us the other day, all of which said that they had no desire for a race to the bottom, that they want the highest possible standards of regulation and corporate governance, and that that is good for the UK, the financial services sector and so on. You are implying that there is a danger here of a looser standard on this issue in the UK than in the EU. Could you explain that to us a bit more? What is the difference in terms of the way that they will view corporate offences and the gap that you see in the UK?
Pat McFadden (Labour, Wolverhampton South East)
I have no further questions, although my colleagues might have.
John Glen (Conservative, Salisbury)
Q Thanks for giving evidence, Susan. Following the December 2018 Financial Action Task Force mutual evaluation on the UK, which was pretty positive, there were a few elements that we need to address. You will know that BEIS is taking forward a lot of that work with Companies House and looking at the registration of overseas entities as well. This Bill ensures that HMRC retains its ability to access the ownership of beneficiaries of UK-linked overseas trusts. Can you explain to the Committee how important that is, notwithstanding what you have just been talking about?
There is a Law Commission consultation going on. We have fully transposed the fifth anti-money laundering directive in line with international best practice. You gave us some perspectives on Germany and Holland in terms of future orientations, which is something that I imagine we would look at in the context of that review. How would the provisions of the Bill help?
John Glen (Conservative, Salisbury)
Q To be clear, you are really arguing that we should pre-emptively bring forward measures before that review has been completed.
John Glen (Conservative, Salisbury)
Thank you very much. I will now let other colleagues take part.
Stephen Flynn (Scottish National Party, Aberdeen South)
ThankQ you, Dr Hawley, for the information you have shared so far. Can I refer you point 16 of your written submission? It says:
“However, there is no corporate offence in the FSA and it is therefore not clear that prosecutors would be able to hold companies to account were similar conduct to reoccur.”
I will be open and honest with you: I do not have a legal background, so perhaps you could elaborate on that further. Either there is the ability to do something or there is not. That ties in with the remarks about Barclays in point 21, which quotes remarks that it
“effectively removes companies with widely devolved management and functioning boards”.
The term “effectively” implies that it could or could not. Can I have a little more clarity on that point?
Stephen Flynn (Scottish National Party, Aberdeen South)
Q Thank you for that clarity. To play devil’s advocate a little, in terms of the individual versus collective responsibility, which is effectively what is being inferred here, do you see any dangers in going down that route?
Stephen Flynn (Scottish National Party, Aberdeen South)
Yes.
Stephen Flynn (Scottish National Party, Aberdeen South)
Thank you.
Philip Davies (Conservative, Shipley)
It might be helpful for colleagues and our witness to say that we have 18 minutes left and three people who want to ask questions, so people might want to be mindful of that.
Abena Oppong-Asare (Labour, Erith and Thamesmead)
I want to go back to what Mr McFadden and Mr Flynn talked about, particularly regarding this Bill, so that I have a better understanding. One of the things I am concerned about is that there seems to be more of an onus on punishing the individuals, in comparison to the companies. Earlier in your comments, when questioned about creating corporate and not individual offence, you mentioned holding a company to account, and that, to an extent, that can be done by holding the individuals to account. However, there have been concerns about holding senior executives to account, particularly with Barclays and Tesco. Do you have any direct recommendations that can strengthen the Bill so that it can hold companies to greater account so that we do not have that loophole where individuals are held responsible for this?Q
Abena Oppong-Asare (Labour, Erith and Thamesmead)
Q That would be helpful. The Bill also increases the maximum sentence for criminal market abuse from seven to 10 years, in line with comparable economic crimes. Do you think that is a strong enough incentive to prevent offences? Is that something you have come across, with crimes going on for some period of time? Do you feel that the maximum sentence will deter that?
Abena Oppong-Asare (Labour, Erith and Thamesmead)
Q Thank you. I have a final question, which is about your report. I know that my right hon. Friend the Member for Wolverhampton South East asked you a question about the prospect of smaller companies being at a higher risk of fines, which you said you were concerned about. Is there anything specific that could be put into the Bill to help ensure that does not happen? You mentioned earlier that it is easier for smaller companies to be prosecuted, because it is easier to identify the people involved. That seems like a massive and unfair disadvantage for smaller businesses. I am worried that if we do not address this issue, smaller businesses will be prosecuted whereas, effectively, larger companies will not. Do you have specific recommendations that could be looked into?
Abena Oppong-Asare (Labour, Erith and Thamesmead)
Thank you.
Julie Marson (Conservative, Hertford and Stortford)
Thank you for your evidence, Susan. I think we all agree that it is such an important area, and your evidence is really interesting.Q
I was looking at some of the specialist fraud and financial crime law firms’ response to the Law Commission’s review, particularly how it relates to the “failure to prevent” suggestion. They have called the Government’s desire to look at that in the round a very measured approach, and they have pointed to the fact that there have been lots of developments in regulatory and legal environments since the call for evidence. They have said that, actually, the best approach is probably to wait and see—to review, and to look at the entire issue in the round. Given the complexity and the cost to business, what is your response to that?
Julie Marson (Conservative, Hertford and Stortford)
Q I have just one quick follow-up question. You are quite right that in that evidence there was quite a consensus on the need to act. Is it fair to say that there was less of a consensus on exactly how to act—that plays into what we are looking at, waiting for the Law Commission to respond—and that, given the length of time since the call for evidence, there might be less consensus because there have been more actions since?
Julie Marson (Conservative, Hertford and Stortford)
I do, but I will let someone else come in. Thank you.
Angela Eagle (Labour, Wallasey)
You said something astonishing today. You said that, in your opinion, we have outsourced our enforcement on economic crimeQ to the US.
Angela Eagle (Labour, Wallasey)
Q I was just getting you to reaffirm that is what you meant: that essentially that is what we have done, because presumably you think that our enforcement and activity against this kind of economic crime is much inferior to what is going on in the US?
Angela Eagle (Labour, Wallasey)
Q It would be very useful if you would share that information. What can we do to improve the incentives to prevent this activity? Is that more about enforcement and the almost wiping out of action fraud and much of the criminal work that goes on to prevent fraud, which—let’s face it—has fallen off a cliff in terms of its success rates? You have made some very interesting points about how you think the law should be changed, but is that about the law or is this an enforcement problem? Do you think the FCA is fit for purpose when it comes to the enforcement for which it is responsible?
Angela Eagle (Labour, Wallasey)
By the way, without meaning to be rude, you have three minutes to answer this or the Chair will cut you off.
Angela Eagle (Labour, Wallasey)
Q Finally, because you answered that so fast, do you think that the way to deal with the larger global companies is vicarious liability, rather than “failure to prevent”? Should we be thinking of introducing a law saying that after a company gets beyond a certain size, we switch to vicarious liability, because this idea of directing mind is simply not present in larger global corporates?
Philip Davies (Conservative, Shipley)
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions. I thank our witness for her evidence on behalf of the Committee. That brings us to the end of the morning sitting. The Committee will meet again at 2 pm in the same room to take further evidence.
Examination of Witness
Rupa Huq (Labour, Ealing Central and Acton)
Good afternoon, everyone. We will now take evidence from the first of our afternoon witnesses, who is joining us remotely. I remind hon. Members on the right-hand side of the room and in the Public Gallery to use the microphone near the window when they pose their questions. We will hear first from Hugh Savill, from the Association of British Insurers. We have until 2.45 pm for this session, so lots of time. Hugh, will you introduce yourself for the record, please?
Rupa Huq (Labour, Ealing Central and Acton)
Thank you. We will start with the Minister, John Glen.
John Glen (Conservative, Salisbury)
Q158 Thank you, Dr Huq, and thank you very much, Hugh, for giving evidence to us this afternoon. Thank you very much also for the written evidence that the ABI has submitted, I think through you, and for the welcome that you give to the measures, particularly on Gibraltar, the overseas fund regime, PRIIPs and money laundering.
I would like to probe your views on the measures that we are introducing with respect to access arrangements between the UK and Gibraltar for financial services firms. How do you see the issues around maintaining the same quality of regulation between the Gibraltarian and UK regimes? Do you foresee any challenges with that? How important do you think that that level playing field will be?
John Glen (Conservative, Salisbury)
Q I understand from your written evidence that, as a body, you have some reservations about the setting of conduct rules at an international level. Would you like to say a bit more about that and explain what implications it has for how we should approach this issue going forward?
Rupa Huq (Labour, Ealing Central and Acton)
I’m sorry, Hugh, could you please pause for a moment? We have a noisy bell. It is gone now, so please carry on. Can you start that sentence again?
John Glen (Conservative, Salisbury)
We won’t go there.
John Glen (Conservative, Salisbury)
Thank you very much, Hugh. I will pass you on to Pat.
Pat McFadden (Labour, Wolverhampton South East)
Good afternoon, Hugh. I want to follow on from the questions that the Minister asked you. I think it is fair to say that ABI has been a part of the financial services sector that has perhaps been more critical than others of the way that EU directives have applied to your sector. Given that the Bill onshores quite a lot of that regulation and gives it to the UK regulators, what differences are you hoping for in the way you will be regulated in the future compared with these directives, which you have been unhappy with in various ways?Q
Pat McFadden (Labour, Wolverhampton South East)
Q Can I go back to the issue of Gibraltar? Gibraltar has lots of friends across the parties in Parliament, and the Bill sets out a special regime for Gibraltar. Given the generous access to the UK market envisaged in the Bill for Gibraltar-based firms, is there any risk or danger that UK-based insurance companies might have reasons to relocate to Gibraltar and do their business from there?
Pat McFadden (Labour, Wolverhampton South East)
Q Is there any tax advantage to being located in Gibraltar?
Pat McFadden (Labour, Wolverhampton South East)
Q Okay. Is there a particularly good reason for creating this sort of regime for Gibraltar, but not having something similar for, say, the Channel Islands, the Isle of Man or other Crown dependencies elsewhere in the world?
Pat McFadden (Labour, Wolverhampton South East)
Thank you very much. I don’t have any further questions.
Rupa Huq (Labour, Ealing Central and Acton)
So we go to the Scottish National party spokesperson, Alison Thewliss.
Alison Thewliss (Scottish National Party, Glasgow Central)
The briefing that you provided on the Bill mentions referring any disputes to the Financial Ombudsman Service. Can you tell me a bit more about how that works at the moment and your fears about what the proposals might mean?Q
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Are there any other risks to consumers within the UK from this move?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Do you think that consumers are aware of where their insurance policies are coming from? Will this lead to people thinking about that a little bit more?
Rupa Huq (Labour, Ealing Central and Acton)
I open the questioning to other members of the Committee. Does anyone else have questions? I call Miriam Cates.
Miriam Cates (Conservative, Penistone and Stocksbridge)
You said that consumers expect different things in different markets. In your briefing note, you said that the Bill will allow the FCA to develop a methodology that is more accurate and that works for the UK market. Can you give an example of a characteristic that is specific to the UK market and how the Bill will help to meet those expectations?Q
Andrew Jones (Conservative, Harrogate and Knaresborough)
Thank you very much for giving evidence today, Hugh. One quick question about the market access arrangements: do you think there will be any price implications from those for UK consumers? Could we see price inflation via premiums increase as a result?Q
Andrew Jones (Conservative, Harrogate and Knaresborough)
Yes, just generally. We are seeing a large provider have access to our markets. That could traditionally see increased supply. Increased supply tends to mean price competition, with consumers benefiting both in quality and innovation of product and in the price they pay for it, but equally it can work the opposite way. So do you think there will be any price implications for UK consumers as a result of these measures?
Stella Creasy (Labour/Co-operative, Walthamstow)
You suggested there was a small VAT benefit to companies being based in Gibraltar. Obviously, this legislation would remove any other bar in terms of being based in Gibraltar but still being able to operate in the UK. Could you clarify what you mean by a small VAT benefit?Q
Rupa Huq (Labour, Ealing Central and Acton)
So that will be followed up by letter?
Rupa Huq (Labour, Ealing Central and Acton)
We await it with impatience.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I am happy to let other Members come in if they have questions, rather than hog the platform. There were some comments on equivalence in the briefing you put together. Can you tell us a wee bit more about your thoughts on equivalence both in the wider sense of it being used as a potential political weapon and in the narrower sense of what happens to investors if equivalence is withdrawn?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q What further information do you think would be required for people who have invested, to give them further reassurance?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I am just curious because you said that, for the regime to fully work for customers, situations such as this need to be clarified. I thought that you were asking for further detail or reassurance.
Pat McFadden (Labour, Wolverhampton South East)
Q I had a further thought on the question of tax advantage. A quick search tells me that Gibraltar’s corporation tax level is 10%. There may be some caveats around that—it was a quick search—but if that is the case, that is quite a hefty advantage for a company, compared with the UK rate, is it not?
Rupa Huq (Labour, Ealing Central and Acton)
Thank you. This letter is getting longer.
Rupa Huq (Labour, Ealing Central and Acton)
Good, good. If there are no further questions, all that remains is for me to thank you, Hugh, for your evidence as our first witness this afternoon. We finished a bit ahead of time. Thank you for that.
Rupa Huq (Labour, Ealing Central and Acton)
We move on to our second witness this afternoon and the only one who is appearing in person today. Duncan Hames is no stranger to this place. He is now from Transparency International. Duncan, do you want to introduce your job title for the record, and what you do?
Rupa Huq (Labour, Ealing Central and Acton)
We have until half-past 3 for this session, so a good long time. Unusually, we are going to the two Opposition spokespeople first, and then to the Minister. We are shaking it up a bit. We will start with shadow Minister, Pat McFadden.
Pat McFadden (Labour, Wolverhampton South East)
Q Thank you, Dr Huq, and thank you, Duncan, for coming. Let me first ask a broad question. On transparency, when you look at the regulators’ duties as changed by the Bill, do you want to see any additional duties placed on the regulators on the transparency front, or do you think they are properly armed and equipped as they are?
Pat McFadden (Labour, Wolverhampton South East)
Q Do you want to see more duties on companies or do you think that, at least on paper, the duties on companies in terms of corporate declarations and so on are currently fit for purpose?
Pat McFadden (Labour, Wolverhampton South East)
Q We had a witness this morning from Spotlight on Corruption, who argued for the addition of a “failure to prevent economic crime” measure to the Bill at the appropriate place. Is that something you would support?
Pat McFadden (Labour, Wolverhampton South East)
Q I suspect if we got into this in Committee, on Report or wherever, the counter-argument would be, “Look, the Law Commission has just launched this great consultation, and we should not be pre-empting that by jumping to a conclusion. We might do this, but we have to wait for the Law Commission.” What is your response to that argument, in case we hear it at some point?
Pat McFadden (Labour, Wolverhampton South East)
Q In terms of potential amendments to the Bill, that would be top of your list. Are there any other areas that you think could usefully be amended or added to?
Pat McFadden (Labour, Wolverhampton South East)
Q The last thing I wanted to ask you is about the most recent FinCEN files. This all comes out through the United States authorities. We find out about the actions of British financial institutions through the actions of a regulator in another country. How would you fix that so that the actions of UK companies are uncovered and publicised here, rather than coming out through another body in another country?
Pat McFadden (Labour, Wolverhampton South East)
Thank you. I will stop there.
John Glen (Conservative, Salisbury)
Q Good to see you, Duncan. You have offered a wide-ranging critique on general aspects of anti-money laundering and anti-corruption matters. You rightly draw attention to the FATF report, which was generally, in the international context, seen as a very favourable assessment of the UK. Department for Business, Energy and Industrial Strategy activities include the Companies House review, the registration of overseas entities work and the limited partnerships reform.
This Bill ensures that HMRC retains its ability to access information on the ownership and beneficiaries of UK-linked overseas trusts, building incrementally on things that have been done previously. Can you explain why this information is important? This is a key measure and, I would have thought, the most relevant.
John Glen (Conservative, Salisbury)
Q In your comments to the shadow Minister you referred to the glacial speed of activity in the UK, but we have, as you have acknowledged, now transposed the fifth anti-money laundering directive into law, in line with our international obligations. I recognise that this morning we heard evidence about what Germany and Holland will be doing in the future, which we reserve the right to look at. Last year we also published the economic crime plan, which was about bringing public and private sector enforcement closer together. Do you have any observations on which elements of that are most integral to improving the situation and where emphasis should lie?
John Glen (Conservative, Salisbury)
Always!
John Glen (Conservative, Salisbury)
Q The consultation is under way on that.
John Glen (Conservative, Salisbury)
Q May I just ask one further question? You referred to OPBAS and the different bodies that regulate different entities, such as the Solicitors Regulation Authority. I have had a lot of interaction, as the Minister, with representative of those bodies, on a regular basis, during my tenure, and obviously HMRC works with them to try to identify best practice and improve what they do. Are you saying that that fundamental organisational entity is not appropriate? I am just not clear exactly what you think should be the alternative. I think the argument would be that those membership bodies contain the expertise within the different sectors, which have very specific entry points and risks, and therefore they need to be dealt with collectively as an entity. What is your view? Is just an anti-private sector view, or a measure to deal with that? What would you see as a meaningful alternative?
Rupa Huq (Labour, Ealing Central and Acton)
I call the third Front Bencher, Alison Thewliss, for the Scottish National party.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Thank you, Dr Huq. I agree with a lot of what you have said, Duncan. Having served on the Joint Committee on the draft Registration of Overseas Entities Bill, I am also hugely frustrated that nothing really has happened with that, since all the evidence was given and the recommendations to Government were quite clear. Are there any other aspects you have not touched on so far where you feel this Bill is a missed opportunity, and where amendments could easily be tabled to improve it?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Indeed. I remember from previous conversations about the overseas territories and Crown dependencies that they were essentially turning things back on to us and saying, “Get your own house in order as well”, in terms of Companies House and other accuracy issues and registers here. Is there anything further on that that you think ought to be in this Bill?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I absolutely agree. You talked about the outsourcing of regulation. Do you think Parliament needs to have more of a role in terms of scrutiny, rather than handing things over to regulators? My concern is that once we hand everything over to the FCA and the Prudential Regulation Authority, we will not really know that there is a problem until something gets too big.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Is there more that could be done in the Bill to open up trusts and make them more open to scrutiny?
John Glen (Conservative, Salisbury)
The point is, as Duncan well knows, that a whole range of interventions have been provoked by that FATF report. I am glad he acknowledges its world-leading nature for the UK. It is good that we should be pleased about that, but there were significant elements that need to be worked on. They are obviously taken in different ways across Whitehall, and there will be more to be said about that in due course. I am responsible for what I am responsible for in this Bill, and the purpose of this conversation is about that.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q An issue that I have around SLPs and enforcement is the fines. Is there work to be done within the scope of the Bill to increase fines in any of the parts mentioned? You mentioned earlier that the level of the fines is minuscule compared with the profits made.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Even when fines ought to be due, they are not enforced. I ask periodically about Scottish limited partnerships and how many people have been fined for failing to register a person with significant control. Every time I ask, it is not in, which is ridiculous. My last question is about the issues to do with Gibraltar. Do you have any concerns about that, or anything that the Committee ought to know?
Julie Marson (Conservative, Hertford and Stortford)
Thank you for your evidence; it is really interesting and this is an important area. We have heard reference to—you used the phrase—the UK outsourcing the prosecution of financial crime to the US. I am sure you will correct me if I am wrong—I do not have it in front of me—but on Transparency International UK’s own list of corruption, the UK comes out 12th out of 198, whereas the US comes out at 23rd, so by comparison with the US, the UK does very well.Q
I am interested to hear your reaction to the criticisms of the report that that phrase came from. It was felt that the scope of the report did not include, for example: the bribery and corruption statistics, including on the “failure to prevent” provisions; the period after the financial crisis, which meant that much implementation was not included in the report; or the way prosecuting in the US often involves plea bargains, which are used to extract fines, so the measurement of the extraction of fines is not necessarily a justified comparison between the UK and the US. What is your reaction to that?
Julie Marson (Conservative, Hertford and Stortford)
Q You mention Lisa Osofsky. I was looking at various practitioners who work on fraud and corporate fraud, and they have welcomed the fact that the Law Commission is going to conduct a review. It is easy to scoff, I suppose, about, “Let’s wait to the end of the review,” but this actually has huge cost implications for business. It is a very complex area. Those practitioners have actually said that it can only be a good thing that the Government are not amending the current law without full consideration and that the Government are taking a very measured approach.
Julie Marson (Conservative, Hertford and Stortford)
That is an interesting comparison.
Stella Creasy (Labour/Co-operative, Walthamstow)
Q I was thinking more of asking turkeys whether Christmas was a good idea. I want to follow up on this, because I have been waiting for the Law Commission on another piece of work that I worked on, which is already a year and a half overdue. It is not connected to financial services, but it indicates some of the challenges of waiting for the Law Commission to follow up on the FATF report, which makes some specific requirements about Gibraltar. This legislation is about the ability to trade between Gibraltar and the UK.
I want to ask your opinion on whether we might be able to learn from the specific proposals in that report. In particular, it recognises that although this does tend to happen, there is no legal requirement to reject applicants with a criminal background in Gibraltar. If we will allow Gibraltar and the UK to operate in the way that this Bill does, do you think we could make it a requirement in the Bill to look at the criminal background of people applying for financial services?
Stella Creasy (Labour/Co-operative, Walthamstow)
Q I am just following up on what the Minister said. He was looking at what he could do to address some of the things that came out of that report. I appreciate that you are not particularly sighted on Gibraltar, but the FATF report also says that there is no dedicated supervision of accountants and tax advisers in Gibraltar, which means that they are perhaps not as cognisant of where people might be trying to launder money. Given that the Bill gives us powers of lines of sight into Gibraltarian firms, do you think that is something we should consider in this legislation, so that when we allow Gibraltarian firms to operate in the UK environment in the way that this Bill does, we could build in some of those safeguards now, with a view to then extending things when the Law Commission eventually reports?
Rupa Huq (Labour, Ealing Central and Acton)
If there are no further questions from the Committee, I thank Duncan Hames for his evidence and we can move on to the next witnesses.
Examination of Witnesses
Rupa Huq (Labour, Ealing Central and Acton)
We will now hear from Jesse Griffiths and Fran Boait, who are from Finance Innovation Lab and Positive Money. We have until 4.15 for this session. Jesse and Fran, do you want to introduce yourselves?
Rupa Huq (Labour, Ealing Central and Acton)
Thank you. We will return to the traditional format with questions first from the Minister and then from the two Opposition spokespeople.
John Glen (Conservative, Salisbury)
Q Thank you, Jesse and Fran, for your willingness to come before the Committee. One of the key elements in the legislation is the need to give our regulators significant delegated powers to implement and enact some of the technical standards. From your perspective, as civil society organisations influencing policy in financial services, how do you engage with the regulators and how do you find that process?
John Glen (Conservative, Salisbury)
Q Can I come back on that? Obviously, on 19 October the Government put out the future regulatory framework review, which looks holistically at the options for putting the future constitutional relationship between the Treasury, Parliament and the regulators on a firmer basis. The measures in this Bill have an accountability framework.
The Financial Services and Markets Act 2000, introduced under the previous Labour Government, was about setting an approach for how the regulators worked, looking at an outcome-based approach with the observation of technical standards. I note that you refer to the proposal about Parliament’s role. Are you really saying that you do not support that fundamental architecture? Given the complexity of the regulations and technical standards, do you think it is realistic for Parliament, in terms of capacity and expertise, to offer the sort of scrutiny that you think is lacking?
John Glen (Conservative, Salisbury)
Q I just want to make the point that that is not what we are saying. There is a review looking at this holistically—for, I think, 12 weeks—to provide an opportunity to absorb those very relevant points, but I would be very happy now to hand over to Jesse to respond to the same questions.
John Glen (Conservative, Salisbury)
I am very supportive of your observations there, and I look forward to further engagement on that. I think that, in fairness to other Members, I should now pull back and hand over to Pat.
Pat McFadden (Labour, Wolverhampton South East)
Q Thanks to both of you. We had a bit of a discussion earlier about a suggested reform for preventing economic crime. We were saying that when we get into it, we are probably going to be told to wait for the Law Commission. I have a feeling that, on accountability, we are going to be told to wait for the future regulatory framework review to conclude, but I do want to ask you about this area and about the duties on regulators, and I would like to start with the latter.
The Bill, in schedules 2 and 3, sets out new accountability frameworks for the regulators. They are to abide by relevant international standards and to have regard to the relative standing of the UK as a place for internationally active investment firms to be based, or to other matters specified by the Treasury. I would like to ask whether you think it is appropriate for broader goals to be considered in that regulatory framework, and I am thinking particularly of environmental, social and governance goals. The UK wants to be a leader in that area. The Chancellor of the Exchequer set out an ambitious environmental agenda for our financial services industries in his statement about 10 days ago. Do you think that the Bill is an opportunity to put regulatory weight behind the ESG agenda?
Pat McFadden (Labour, Wolverhampton South East)
Q Thank you, both. The second thing that I want to ask you about is accountability. It is true that proper scrutiny of all this requires resources, but that is a question not just for Parliament but for the regulators, which are being given big additional tasks. You have indicated that you are in favour of a more active ongoing role for Parliament, and I would like to give you the chance to tell us a bit more about that. Obviously, the regulators have to have day-to-day freedom to apply regulation at the level of the individual firm, but you are absolutely right, Fran, that in the financial crisis capital was at the heart of this and how we regard that level of resilience for firms.
If we are giving the regulators these big new responsibilities, both at the prudential and the conduct level, how would a more active role for Parliament work? We have one Select Committee that is active in this area, which already has a really broad agenda of work—the Treasury Committee. We have members of it on this Bill Committee, and they all do a great job, but things are pretty thinly stretched. Could you tell us more about how you think Parliament could have a more active role after the onshoring of all this regulatory responsibility? Again, I will start with you, Fran.
Pat McFadden (Labour, Wolverhampton South East)
Q Jesse, you have experience of this at EU level where they have the ECON Committee, which looks at things before they are implemented. We have also had a suggestion from the hon. Member for Hitchin and Harpenden (Bim Afolami) for some kind of specific financial services Committee in Parliament. Would you think of that suggestion?
Pat McFadden (Labour, Wolverhampton South East)
Okay. I will stop there and leave it to others.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I would like to thank Finance Innovation Lab for the briefing, which was really quite interesting and a different approach. Pat has hoovered up some of the questions that I was going to ask, but is there anything else in particular that you would like to see in the Bill?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q In terms of saving for people who are at the margins, have you any thoughts about the Help-to-Save scheme and the measures on that?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Lastly, Jesse, I think the phrase you coined, accountability deficit, is quite useful. Can I ask a wee bit more about the risks that moving everything over to the regulators might have?
Rupa Huq (Labour, Ealing Central and Acton)
I have seen two other Members indicating. First, I will come to Abena Oppong-Asare.
Abena Oppong-Asare (Labour, Erith and Thamesmead)
I found your comments really insightful. I have several questions, but first I want to go back to your comment about how the Bill does not mention any environmental priorities. You have come with several recommendations, and you said that you have seen the amendments, particularly amendments 20 and 24, which you support.Q
I want to clarify something you mentioned, which is that there should be an element of penalising large organisations for not carrying out environmental risk assessments. As we know, there are large organisations and companies such as Barclays that do that. I wanted to hear from you about how those penalties would be carried out. Are they financial ones? The concern that I have is that big companies would be able to afford to pay financial penalties, so is that really a great incentive or way of holding them to account?
Abena Oppong-Asare (Labour, Erith and Thamesmead)
Jesse, do you have any further comments?
Abena Oppong-Asare (Labour, Erith and Thamesmead)
Q The Bill mentions a statutory debt repayment plan; I want to get your thoughts on that. Are there elements that you are concerned about? Do you think it goes far enough, and if not, can you make some recommendations? Can I go with Jesse first?
Stella Creasy (Labour/Co-operative, Walthamstow)
Q I want to follow up on a couple of things. First and foremost, Jesse, you were talking about the co-operative banking sector, what we could do, and what would be within the scope of the Bill, given that co-operative and mutual banking would be covered by the Prudential Regulation Authority. Obviously, there are a number of requirements on co-operative banking that we could consider superfluous now that we have this legislation. I am thinking in particular about section 67 of the Co-operative and Community Benefit Societies Act 2014, which has some unnecessary constraints, given the capital structure it requires. Do you agree that it would be helpful in creating a level playing field, and ensuring that co-op banks and mutuals could compete, to recognise that as the Bill provides prudential regulation that covers those banks, those earlier provisions are superfluous?
Stella Creasy (Labour/Co-operative, Walthamstow)
Q I take your point that being concerned only with competitiveness is a very narrow view of what is good for the consumer. That piece of regulation does not prevent co-op banks from holding a banking licence, but it could be seen as preventing the competitiveness of co-op banks. If the Government are interested in co-operative banks and supporting their ability to compete, it would be a good thing to remove.
You and Fran talked powerfully about trying to ensure that this Bill has at its heart a positive approach to consumer regulation. Perhaps one of the things missing from it is consideration of its inevitable impact on consumers. Do you have a view about the benefits of reviewing how the Financial Conduct Authority has acted for consumers, and are there are areas where you think it could have gone further and been more proactive? The Bill gives the FCA new regulatory powers. I have an interest in high-cost credit. If we wanted the FCA to take a more proactive view in using these new regulatory powers for consumers, where would you want it to act?
Stella Creasy (Labour/Co-operative, Walthamstow)
Q Jesse, you may wish to answer this. Fran talked powerfully about mission. Our regulatory structure talks about consumer protection. In previous evidence sessions, we have talked about, and indeed the Bill contains provisions for, debt respite, which is very much about protecting consumers when things go wrong. Is there a case for being more proactive about the consumer experience, and perhaps charging our regulators with being more proactive on consumer detriment to try to prevent some of those problems? For example, we could look at what we could learn from capping high-cost credit, and extend that across the whole credit industry—or to sectors where there is no regulation, but we can see that consumer detriment is likely to occur from the model. We could move to a more proactive approach from the regulator, with horizon scanning for what might happen to consumers.
Rupa Huq (Labour, Ealing Central and Acton)
I thank both witnesses for their evidence. Our final panellist is poised and ready to go, so thank you, Jesse and Fran.
Examination of Witness
Rupa Huq (Labour, Ealing Central and Acton)
We have a treat now. Every other word seems to have been “Gibraltar” this afternoon. Our final witness is the hon. Albert Isola, Minister for Digital and Financial Services in Her Majesty’s Government of Gibraltar. Minister, thank you for being with us. Will you introduce yourself for the record?
Rupa Huq (Labour, Ealing Central and Acton)
Good value! Thank you. We will start with our Minister, John Glen.
John Glen (Conservative, Salisbury)
Q Minister, thank you very much for taking the time to join us as we start our scrutiny. It would be helpful for the Committee if you could set out the nature of the relationship between the UK and Gibraltar on financial services, whether you welcome the measures in this Bill, and what you see as the most significant elements of the legislation.
John Glen (Conservative, Salisbury)
Thank you very much. It was extremely helpful of you to set the context for the Committee. I have no further questions. I will invite my colleagues to probe a bit further into what you have experienced in the past few years, and how you see the future.
Rupa Huq (Labour, Ealing Central and Acton)
We have until 5 pm for this session, so there is a good length of time.
Pat McFadden (Labour, Wolverhampton South East)
Q Minister, thank you for giving us your time this afternoon. There is a long-standing and warm relationship between the UK and Gibraltar that informs the measures in the Bill. The Government are trying to create a sort of mini-single market in financial services between the UK and Gibraltar to ensure your continued market access to the UK in future. I am sorry we cannot do much about your market access to the other 27 states to which you currently have market access, but sadly that is beyond the powers of the Committee. Can I ask you, in simple terms, are you happy with the Gibraltar provisions in the Bill as they stand?
Pat McFadden (Labour, Wolverhampton South East)
Q We have heard quite a lot of references today to the proportion of motor insurance policies in the UK that are sourced out of Gibraltar. I think it is roughly 20%. Looking at the market access regime established by the Bill, is it Gibraltar’s ambition to grow the proportion of UK-purchased financial products from Gibraltar—for example, in other areas of insurance, other savings products, or other parts of financial services? Is it a platform on which you want to grow?
Pat McFadden (Labour, Wolverhampton South East)
Q My final question is one that I touched on with the Association of British Insurers in its evidence earlier this afternoon. Given the platform that is being created by the Bill, do you see any potential for attracting businesses currently in the UK to relocate to Gibraltar? Would there be any corporation tax advantage for them in doing so, for example?
Pat McFadden (Labour, Wolverhampton South East)
I am sure it is; your weather is certainly better. I have no further questions. Thank you very much, Minister.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I just have a couple of questions. You mentioned that insurance is the largest area; are there any other aspects of financial services that require any further legislative action, or are you content with the way in which the legislation is set out?
Alison Thewliss (Scottish National Party, Glasgow Central)
Apologies; you are quite far away, I suppose. You mentioned that insurance is the largest area in which you have dealings. Are there any other aspects of financial services that are not covered in this Bill that require any further legislative action, or does the Bill cover everything that you require it to?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Thank you. Presuming that all these standards are met at the current time, do you have any worries about meeting those standards or any implications that not meeting those standards would have?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Do you think that the rules give adequate protection for UK as they are set out in the legislation?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q You do not foresee any diminution of that protection that UK consumers have?
Alison Thewliss (Scottish National Party, Glasgow Central)
Thank you very much.
Rupa Huq (Labour, Ealing Central and Acton)
Stephen Flynn, could you make your way to the mic and speak right into it? That one will work, although it has Duncan Hames’s name by it.
Stephen Flynn (Scottish National Party, Aberdeen South)
I am sure that Duncan would be overjoyed to be associated with me.Q
Thank you, Minister Isola, for presenting yourself before us today and for the information that you have provided. I would like to follow on from the shadow Minister’s questions about the competitive advantage that Gibraltar may or may not have. As I see it, the Bill seeks to create a level playing field, but it could be inferred that Gibraltar has a competitive advantage over our constituent parts of the United Kingdom—indeed, the home nations—given that it has abilities in relation to corporation tax and other forms of taxation that the home nations do not. How would you assess that? I appreciate that you sought to answer Mr McFadden in that regard, but do you feel that we could see a situation in which businesses will seek to take advantage of what is clearly a level playing field with a competitive advantage for yourselves?
Rupa Huq (Labour, Ealing Central and Acton)
As there are no further questions, I thank you, Minister, for joining us remotely from Gibraltar as our final witness of the day. This is the end of our fourth and last evidence session.
The Committee will meet again, not here but in Committee Room 14, on Tuesday at 9.25 am—bright-eyed and bushy-tailed for our first sitting of line-by-line scrutiny.