Simon
Hughes: I have just one question on that. I can see the
argument, but how will one know that they are operating from Fuengirola
or the Cayman Islands? The public find it difficult enough to find out
whether their lawyers are legally qualified. The chances of their
discovering whether they come from Tenerife or Timbuktu are even more
remote.
Bridget
Prentice: I understand the intention behind the amendment,
and it is perfectly reasonable. All that I would say to the hon. Member
for North-East Hertfordshire is that while there is nothing to prevent
a company from basing itself outside the jurisdiction and continuing to
offer regulated claims management services, it still has to be
authorised to do that; otherwise it is committing an offence and is
liable to prosecution. We could get into a debate about extradition,
but I do not wish us to do that here, and my hon. Friend the Member for
Worcester (Mr. Foster) would have a horrible look on his face if I went
down that road. However, I can say that they would have to be
regulated. We would also have the power to ask other providers to
co-operate in not dealing with unauthorised providers. It would not be
in the Law Society’s interests, for example, for lawyers to deal
with unauthorised providers.
John
Mann: There have been examples of offshore insurance
companies—from the Isle of Man, for example—in recent
times. Does that mean that a claims handler and a solicitor will need
to declare to their regulators whether they have offshore accounts? If
not, why not?
Bridget
Prentice: I am not sure that I can give my hon. Friend a
comprehensive answer to that question. I suspect—I shall
check—that Financial Services Authority rules cover it. If they
do not, I shall ensure that I come back to him with a clearer
answer.
Mr.
Heald: I think that the Financial Services and Markets Act
2000 specifically extended the jurisdiction out to the Isle of Man and
the Channel Islands. The hon. Member for Bassetlaw raises the
intriguing possibility of having what amounts to an alternative
business structure combining insurance, claims
handling and solicitors’ activities based in the Isle of Man.
What would be the Minister’s response to that? I do not trust
the people involved in that area.
Bridget
Prentice: I am not a financial expert by any means, so I
am loth to comment. However, I undertake to get back to the Committee
on that question, because it is important and we would all want
clarification as to what would happen in the case of somebody with
offshore activities.
Mr.
Heald: Perhaps the Minister would write to the Committee
before Report to explain what happens in terms of the Isle of Man, the
Channel Islands and any other obvious problem areas in the European
Union. That would be extremely helpful.
Bridget
Prentice: I will certainly give the Committee that
assurance.
Mr.
Heald: On the basis of that very constructive response
from the Minister, I shall not seek to divide the Committee. I beg to
ask leave to withdraw the amendment.
Amendment, by leave,
withdrawn.
Clause 3 ordered to stand
part of the Bill.
Clause
4The
regulator 3.15
pm
Mr.
Heald: I beg to move amendment No. 20, in clause 4, page
2, line 40, leave out ‘may' and insert
‘shall'.
The
Chairman: With this it will be convenient to discuss
amendment No. 25, in clause 4, page 2, line 40, leave out ‘a
person' and insert ‘the Financial Services
Authority'.
Mr.
Heald: These two amendments touch on an issue that would
have been covered had I moved amendment No. 16. That is the need to get
on with this, and to introduce some robust arrangements that will act
relatively quickly in this area. Amendment No. 25 says that the FSA
should be the regulator. I tabled this slightly probing amendment
because the FSA is the most appropriate body to regulate the claims
management industry. It may be difficult to persuade the FSA to take it
on, but I wonder whether that is the end of the matter. Baroness Ashton
of Upholland said in the other place that the FSA does not wish to take
it on, but is that the end of
it? I suppose that my
point is a bit more fundamental. Who tells the regulator what it should
and should not do? I hate to say it, because I am sure that the
Minister does not look at the matter entirely in this way, but it seems
as though the FSA has been allowed to say, “Sorry, chum. Okay,
we do the insurance industry and a lot of this work is, in effect, in
the insurance sector—after-event insurance—but we are not
prepared to take it on.” Who governs the country? Is it
Ministers or Parliament who say what happens or is the FSA entitled to
pick and choose? If Ministers genuinely do not feel that it is
appropriate for the FSA to do this it would be a different matter, but
if it is just that it has rather a lot on and it would be inconvenient
to take up such institutions, I wonder whether we should accept that
and let it get away with
that. Amendment No. 20
would impose a duty to appoint a regulator, rather than making it a
permissive power. Ministers have searched the regulation world high and
low looking for a regulator to take this function on. It seems that, in
the interim, we will be left with the Lord Chancellor, plus a trading
standards organisation. Is the Minister able to give us any more idea
than previously about what the final position will be? From what I have
read in the draft Legal Services Bill, the Legal Services Commission is
not to be the front-line regulator; it has a more supervisory role,
overseeing the activities of organisations like the Bar
Council and the Law Society. Its role is, in a sense, to give those
organisations a licence or supervise them, not to do the job. What is
the Minister really proposing as the long-term solution? Does he
envisage a separate front-line regulator in this area? Clearly, it
cannot be the Claims Standards Council, because that does not seem to
be a robust or effective
body. These two
amendments are trying to clarify why the FSA, which deals with
insurance, is not the regulator, why the Minister will only have
discretion to appoint a regulator and what the final outcome is
supposed to
be.
Simon
Hughes: On amendment No. 20, I assume that the Minister
will say that this is the normal drafting for such things. However, I
agree with the purport behind it, which is that we need to get
on. On amendment No.
25, the Minister knows that our view is that the FSA, although a
prospective candidate, would not be the logical
regulator—whether it has said that it wanted to do so is a
separate question—and that the logical regulator is the
regulator in the wings, coming through in the draft Legal Services
Bill. I accept that it is better to have an interim arrangement and
then hand it over to that regulatory body, because there is a closer
affinity between the services that lawyers purport to offer and these
sorts of services, rather than those currently regulated by the FSA and
these
services.
Mr.
Heald: I fully take the hon. Gentleman’s point that
that structure may be robust, but within it the Legal Services
Commission sits at the top, overseeing the regulatory activities of the
Bar Council, the Law Society, the Institute of Legal Executives and
various other bodies in the legal world. At the moment there is no
front-line regulator for claims handlers and, although the structure
will be in place, that is still a live issue, is it
not?
Simon
Hughes: I accept that. My fairly spontaneous response is
that there will be a fourth satellite to deal with the industry, coming
under the general umbrella of the new legal services board but not
dealing with the other three distinct professional
groups.
John
Mann: Will ongoing consumer complaints be immediately
admissible to the regulator, and will the regulator be given guidance
on relevant Law Society policy decisions made over the past year or two
that
could provide good guidance on how the regulator should deal with
complaints against claims
handlers?
Mr.
Hollobone: The question of who is the regulator must be
followed by the question of who pays for the regulator. The clause
allows the Secretary of State to pay grants to the regulator, and in
another place Baroness Ashton has stated that she envisages an initial
grant of £750,000 to launch it. The regulator will have the
power under paragraph 7 of the schedule to
charge “fees in
connection with applications for, or the grant of,
authorisation” or “periodic
fees for authorised
persons”. Those are
considerable powers, and I would welcome further assurances from the
Minister about the level of fees
envisaged. The matter
of funding should be about having a level playing field for the fees
involved and ensuring that all those covered by the regulations pay for
the regulator rather than just some of the participants. We need
further to explore how to set the level of fees, as it is likely that
there will be different levels depending on a number of factors, such
as turnover, type of activity and so on. In another place Baroness
Ashton stated that she believes the number of players in the market
will drop dramatically once a system of regulation is introduced. I am
sure that all members of the Committee would welcome that, even if we
approach the matter from different perspectives. It means that there
can be no certainty about the level of fees or whether the system can
be
self-funding.
Bridget
Prentice: I appreciate the concerns that the hon.
Gentleman has expressed about who should regulate. I said on Second
Reading, and repeat now, that we have decided that the DCA should be
the regulator for a couple of good reasons. First, as the hon. Member
for North Southwark and Bermondsey said today and made clear on Second
Reading, it is an interim solution pending the wider reform of legal
services. In the longer term it would be ideal to have an organisation
independent of Government to regulate the service, but we need to act
quickly and effectively to tackle the abuses that consumers are
experiencing. That is why the Secretary of State being regulator fits
the bill. We
considered a number of existing regulators, but none proved suitable.
The hon. Member for North-East Hertfordshire mentioned the Claims
Standards Council as one example. Irrespective of the desire of some
existing organisations to take on the role, we did not believe that the
Financial Services Authority, with its existing responsibilities, was a
particularly suitable candidate, and the same might be said for the
Office of Fair Trading. Both have tightly defined remits and it would
not be appropriate to distract either organisation from its core
regulatory work. The
hon. Member for North Southwark and Bermondsey said on Second Reading
and reiterated today that the industry should be regulated by what he
referred to as a member of the family of regulating legal services.
Like him, I believe that claims
management services are much more akin to legal services than to
financial ones. Yes, sometimes claims management companies carry out
insurance and so on after the event and, in that case, they would be
regulated by the FSA. However, as for claims management, they should be
regulated by the Secretary of State. The hon. Gentleman was right. When
companies undertake that type of service after the event, they should
be regulated by the FSA, but it only gives authorisation in respect of
the insurance activity, not the claims management activity. In claims
management, profits are made from the fees that would come from
solicitors, so it seems more appropriate that such matters are
regulated under the
system. Baroness
Ashton of Upholland had discussions with the Economic Secretary to the
Treasury when the Bill was discussed in the other place. They agreed
that the FSA should concentrate on doing what it is good at, which is
regulating financial services. We have invited expressions of interest
from trading standards departments to run the monitoring and compliance
of the function and I hope, if I can, to give members of the Committee
more details about the regulatory regime before the Bill leaves the
House and, indeed, give them details about the appointment of the
appropriate senior individual in the DCA to lead the
implementation.
Mr.
Heald: Does the hon. Lady accept that, when the legal
services board is set up, it should be completely independent of the
Government? It should not have any conflicts of interest. If the
Secretary of State is to be one of the regulators underneath the legal
services board, which he has appointed, does she agree that there would
be a problem of independence, conflicts of interest and the like? Is it
not the case that there must be an ultimate solution that has some
independent regulator under the legal services
board?
Bridget
Prentice: Yes, I agree absolutely. Of course, the legal
services board will be able to regulate directly if it chose to do so.
We will be looking carefully at that matter to reach a suitable
long-term
solution. When the
impact of the regulation of the market becomes clear and the wider
reforms of the legal services are further advanced, we might be able to
make a much better decision about the longer-term solution for delivery
regulation within the framework. On that basis, I ask the hon.
Gentleman to withdraw amendment No.
20. Amendment No. 25
suggests that the Secretary of State could designate only the FSA as
regulator. I have already covered the reasons why that would not be
appropriate. I say to my hon. Friend the Member for Bassetlaw that
clause 8 will allow for transitional provisions and that will, for
example, give the regulator discretion to investigate complaints in
respect of conduct that had started before the Bill becomes
law. I say to the
hon. Member for Kettering that we will be consulting on the formula for
setting the level of fees. We envisage that it is likely to include a
one-off application fee and an annual fee based on turnover. Obviously,
that will be proportionate. We have the funds in place to ensure that
the regime can be set up properly and that the consumer can benefit
immediately from the Bill when it is
enacted.
3.30
pm
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