 House of Commons |
Session 2009 - 10 Publications on the internet Financial Services Bill |
The Committee consisted of the following Members:Chris Stanton, Eliot Wilson,
Committee Clerks † attended
the Committee Public Bill CommitteeThursday 14 January 2010(Afternoon)[Mr. Roger Gale in the Chair]Financial Services BillNew Clause 3Securing
consumer protection ‘(1) The
Financial Services and Markets Act 2000 is amended as
follows. (2) After section 5,
insert the following new
section— “5A
Securing consumer
protection (1) This section
applies where the Authority becomes aware that any feature or
combination of features of a financial services market, product,
service, or provider in the United Kingdom is or appears to be
significantly harming the interests of
consumers. (2) The Authority
must take such action as it considers reasonable and practicable to
remedy, mitigate or prevent any detrimental effects on consumers
resulting from or relating to the feature or features of a financial
services market, product or
provider. (3) The Authority
must ensure that action taken under subsection (2) shall have regard to
the need to achieve as comprehensive solution as is reasonable and
practicable. (4)
Action under subsection (2) may include action by the Authority itself
and recommendations on the taking of action by others where the
Authority can not by itself meet the requirements of subsection
(3). (5) For the purpose of
subsection (1) the Authority becomes aware in the event of any of the
following— (a) its own
research, reviews, monitoring, supervision or enforcement
work; (b) on
a referral by the scheme operator of the ombudsman scheme or the Office
of Fair Trading; or (c)
Following acceptance of a request from a designated consumer body made
under subsection (6). (6) A
designated consumer body may by presenting evidence of apparent or
likely significant harm to the interests of consumers request that the
Authority takes action under this
section. (7) The Authority
shall within 90 days of a request under subsection (6) publish a
response stating— (a)
whether it accepts or rejects the need for action;
and (b) the reasons for its
decision. (8) For the purpose
of section (5)(c) “designated consumer body”
includes— (a) a body
designated by the Secretary of State by order under section 11 of the
Enterprise Act 2002; (b) the
financial services consumer panel;
or (c) the consumer financial
education body. (9) The
Authority shall prepare and publish a report within one year of any of
the events set out in subsection (5) setting out the action it intends
to take and the reasons for its
decisions. (10) In this section
reference to a financial services market, product or provider refers to
regulated activities as defined by Section
22.”’.—(Mr.
Love.) Brought
up, read the First time, and Question proposed
(this day), That the clause be read a Second
time.
1
pm Question
again
proposed.
The
Economic Secretary to the Treasury (Ian Pearson): It is a
pleasure to serve under your chairmanship, Mr. Gale, for
this last sitting.
I was saying
this morning that although I have great sympathy with the sentiments
behind new clause 3 and with what my hon. Friend the Member for
Edmonton (Mr. Love) seeks to achieve, I do not believe that
it would be right to include it in the Bill. If the provision were
accepted, the Financial Services Authority would be obliged to take
action in the circumstances described in the new clause with a view to
achieving as comprehensive a solution as was “reasonable and
practicable”, regardless of the effect on market confidence or
financial stability.
We have heard
before—I said it again briefly this morning—that in some
circumstances action that benefits consumers in a particular case might
be detrimental to financial stability, which of course could be
prejudicial to the interests of consumers more generally. That
underlines the interplay between the FSA’s objectives. As I said
on amendment 41, we do not want to impose too rigid an approach on the
FSA. What is needed is a sensible and carefully calibrated approach to
taking decisions.
There are
other practical reasons why I recommend that the Committee resist the
new clause, although I agree that my hon. Friend has done a service to
the Committee by raising this important matter. By removing the
FSA’s discretion to act, the new clause may constrain the
authority in its ability to achieve informal or voluntary solutions
without taking enforcement action. That could be difficult. On a
practical level, the wording of the new clause could result in the FSA
being required to take some form of action in every case, or at least
to go through the process of considering what action would be
reasonable and practicable—including in relatively minor cases
that do not justify such an intensive use of resources.
It is not
clear that the new clause would improve on the present position, under
which the FSA can act if it considers that such action is appropriate
and proportionate. The FSA does not have unlimited resources, and it
must be allowed the discretion to prioritise cases and not to act when
it seems that the costs may exceed the benefits. In its annual report,
the FSA has to say what actions it has taken to achieve its objectives,
which means that it can be held to account for its use of that
discretion.
I understand
that there has been some frustration that the FSA appears not to have
responded to complaints or evidence submitted to it. My hon. Friend
will be aware that the FSA requires companies to handle complaints
within eight weeks; if dissatisfied, consumers can complain to the
Financial Ombudsman Service. The FOS can raise issues with the FSA as
appropriate. The FSA can also use individual complaints as a pointer to
the possibility of wider problems.
I accept that
in some cases there may be no way of telling whether appropriate action
has been taken in response to a complaint, another issue that was
raised by my hon. Friend. There are obvious reasons for that. I shall
rehearse some of them. It may be down to fairness, especially before
final decisions have been taken against firms, partly because sections
348 and 349 of the Financial
Services and Markets Act 2000 restrict the FSA’s ability to
disclose confidential information relating to the firms that it
regulates. Importantly, it reduces the risk of jeopardising further FSA
action, as section 391 of the 2000 Act constrains the FSA from
disclosing whether it has issued a warning or decision notice against a
person who is the subject of an enforcement action.
We discussed
some of these issues at length before Christmas, although I realise
that my hon. Friend continues to be concerned about such matters. We
would all like consumer problems to be addressed as quickly as
possible, but the FSA is bound by strict standards of evidence and
impartiality. It must investigate hearsay evidence thoroughly, and it
will always look for the most proportionate response to a problem,
which may involve negotiating voluntary action by firms or issuing
guidance. Any rules it makes must be subject to consultation and
cost-benefit analysis. Earlier in the debate we heard that there must
be adequate checks and balances against arbitrary decisions by the FSA.
Imposing deadlines in the way my hon. Friend suggests is not the right
way forward.
We want the
FSA to be as open as is reasonably possible, but there are good reasons
for being careful about disclosure. They would include the legal and
fairness issues that I have mentioned, but there are also practical
issues. Firms are more likely to provide sensitive information if they
believe that the regulator will deal with it in confidence. Concerns
that information provided to the FSA could end up in the public domain
are likely to change how individual firms behave.
My hon.
Friend raised the issue of super-complaints and the proposal for a
super-complaints regime. As he said, such a regime applies to the
Office of Fair Trading and is contained in the Enterprise Act 2002.
However, the OFT does not benefit from a statutory consumer panel,
unlike the FSA which is required to consult the financial services
consumer panel. I realise that is not identical to designating consumer
bodies in the way proposed, but it does give the consumer a powerful
voice at the heart of the FSA.
As my hon.
Friend knows, we are already giving the FSA tough new powers, and we
have debated clause 26, which will require firms to establish consumer
redress schemes. The FSA can exercise that power when it appears that
there might have been a widespread legal or regulatory breach by firms,
which has caused consumers loss. New powers are being introduced in the
Bill, and I know that my hon. Friend and others will welcome
them.
The FSA and
the OFT will soon publish a discussion paper on the action they are
taking to ensure that consumers receive swift and effective redress.
That will include a discussion of the way that the regulators and the
Financial Ombudsman Service work together, the roles and
responsibilities of other stakeholders, and how to identify and close
down early emerging issues that might affect large numbers of
consumers.
The proposals
in the Bill on consumer protection that we have already debated take
the game forward significantly. Clearly, there are continuing live
issues, which can be considered as part of the discussion paper. I hope
that what I said this morning and what I have just said will reassure
my hon. Friend that his concerns are not only recognised, but being
addressed with substance, and that he will feel able to withdraw the
new clause.
Mr.
Andrew Love (Edmonton) (Lab/Co-op): It is always a
pleasure to serve under your chairmanship, Mr. Gale, and I
apologise to you, and perhaps more importantly to the Minister for
arriving a few seconds late. I hope I did not miss any of my hon.
Friend’s contribution.
Naturally, I
am disappointed that the Minister does not see more merit in the new
clause, but I am not surprised that he does not offer it uncritical
support. I am somewhat optimistic because in his contribution he
recognised some of the concerns about how orientated the FSA is to
consumer concerns, and some of the lapses in its promptness and
transparency when dealing with such issues.
I shall
return to that point, because it bears on the debate that we have just
had, but perhaps I could pick up one or two of the comments made during
the debate. I apologise to the Committee because my opening
contribution on the new clause included a somewhat rhetorical flourish
to suggest that the FSA should become a consumer champion. That may
have been going just a little too far, because I recognise the concerns
expressed by the Minister about the need to balance the differing
objectives of the FSA. That is at the core of how we carry the contents
of the new clause forward. If hon. Members will bear with me, I shall
return to
that. I
want to comment on two issues that were raised. Both were about greater
accountability. One of the outstanding issues is the accountability of
the FSA to the public and consumers. A number of contributions
mentioned the need for greater transparency, and the new clause
reflects that. It also reflects the need for prompt action. I hope that
the Minister will take those issues away with
him. I
was a little less convinced by the Minister’s concern about
bringing rigidity into the way in which the issues are dealt with. That
certainly was not the intention behind the new clause. If that is one
of the concerns, I hope that consideration can be given to making the
measure more flexible so that it really does respond to the
issues raised by many consumer groups and
organisations. I
have to return to what I think was at the centre of the
Minister’s concern about the new clause. He said that, if
accepted, it would rank consumer protection above the other objectives
of the Financial Services Authority. I accept that is an issue and that
the new clause may go a little too far in pushing the
boundaries—perhaps naturally enough, considering that is where
there are major concerns in relation to the FSA. When putting the new
clause together, it certainly was not my intention to skew the balance
too much in favour of the consumer, as I recognise that there are other
important objectives for the FSA, but I accept that it is a
concern. There
is enough concern among consumers in the financial services
marketplace, and it has been somewhat heightened by the turbulence that
we are experiencing in financial services markets; the recession is
bringing out a number of issues that will become very important in
relation to consumer redress. I therefore hope that we will not lose
the measure, but I accept the Minister’s plea that we may have
gone too far. On that basis and on the basis that we will not forget
about the consumer issues that are reflected in the new clause, I beg
to ask leave to withdraw the
clause. Clause,
by leave,
withdrawn.
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