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Payment Accounts (Amendment) (EU Exit) Regulations 2018

Volume 794: debated on Wednesday 12 December 2018

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Payment Accounts (Amendment) (EU Exit) Regulations 2018.

Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

My Lords, as in the previous debate, this statutory instrument is part of the Treasury’s legislative programme which aims to ensure that there continues to be a functioning UK legislative and regulatory regime for financial services in the unlikely event that the UK leaves with neither a deal nor an implementation period.

The statutory instrument will fix deficiencies in UK law in the Payment Accounts Regulations to ensure that they continue to operate effectively post exit. The payment accounts directive had three main objectives: first, to improve the transparency and comparability of fees related to payment accounts; secondly, to facilitate the switching of those accounts; and, thirdly, to ensure access to payment accounts with basic features. The Payment Accounts Regulations 2015 transposed the directive into UK law.

Many noble Lords will be familiar with payment accounts, as they are the day-to-day bank or building society accounts that we use to hold funds, to make and receive payments, and to withdraw and deposit cash. In the UK, the most common form of payment account is a current account.

In a no-deal scenario, the UK would be outside the European Economic Area and the EU’s legal, supervisory and financial regulatory framework. The Payment Accounts Regulations 2015 therefore need to be updated to reflect this to ensure that the provisions work appropriately in a no-deal scenario.

The draft regulations are concerned mostly with removing references to the EU. Therefore, the impact on customers and businesses will be minimal. However, I will go into more detail on three changes to which it may be helpful to draw the Committee’s attention.

The first is that this draft instrument transfers the responsibility for making technical standards for customer documents setting out fees and charges associated with a payment account from the European Banking Association to the Financial Conduct Authority.

Secondly, the draft instrument removes the requirement for payment service providers to facilitate the cross-border opening of payment accounts. This means that payment service providers will no longer be required to provide certain information relating to a customer’s payment account—for example, direct debits or closing balance—or transfer a balance to an EU payment service provider when the customer wants to switch from a UK payment account to an EU payment account. Repealing this provision does not affect the ability of UK customers to open payment accounts abroad.

Lastly, the SI makes changes to the regulations governing payment accounts with basic features, which are more commonly known as basic bank accounts in the UK. For those who may not be familiar with this financial inclusion product, a basic bank account is a fee-free bank account, with no overdraft facility but which otherwise has the same features as a standard current account. The nine largest current account providers in the UK must offer these accounts to those who are unbanked in the UK or who are ineligible for a standard current account.

As the UK will no longer be a member of the EU’s single market for financial services after exit day, the instrument removes the requirement on the nine providers to offer these products to customers resident in the EU or to offer EU currency services on any basic bank account as standard. It will therefore be at their discretion whether to continue to offer basic bank accounts to customers resident in the EU after exit day or keep existing accounts of EU residents open.

The Secondary Legislation Scrutiny Committee was concerned that, should the nine providers choose to make use of these changes and close the basic bank accounts of customers resident in the EU, customers would be placed into financial difficulty as a result. I assure the Committee that this is unlikely to be the case because the nine providers must give customers at least two months’ notice in writing if they plan to close the account, which should give customers adequate notice to open another account.

Furthermore, a customer’s right to a basic bank account is EU-wide, so these customers should be able to open a basic bank account in the member state in which they reside. The nine providers have also signed a 2014 agreement with the Treasury that makes clear that basic bank accounts are designed to help the less affluent and most vulnerable in our society. The Government therefore expect that providers will have due regard to the spirit of this agreement when making any changes to its basic bank account policy.

In summary, this Government believe that the proposed legislation is necessary to ensure that the Payment Accounts Regulations 2015 will continue to function appropriately if the UK leaves the EU without a deal or an implementation period. Most importantly, this means that fee-free basic bank accounts, which are a key financial inclusion product, remain available and robustly regulated to customers legally resident in the UK who are unbanked or ineligible for other payment accounts. I hope this introduction will have been helpful to noble Lords, and I commend the regulations to the House.

My Lords, this SI is part of the series providing contingency planning for the no-deal Brexit scenario. The Payment Accounts Regulations 2015 established a right of access to a basic bank account with basic features for customers legally resident in the EU, which were fee-free for services in sterling, with EU currency services provided at a reasonable fee. The Explanatory Memorandum advises that this SI seeks to ensure that those regulations operate effectively in the UK in the event of no deal and continue to deliver the existing three main objectives of, first, transparency and comparability of fees on day-to-day payment transactions such as cash deposits, withdrawal and card payments; secondly, the facilitation of account-switching; and, thirdly, ensuring access to accounts with basic features for EU residents. Paragraphs 2.2 and 2.12 of the Explanatory Memorandum set out what I have just described.

However, it is difficult to see how this SI can deliver those three objectives, given that the draft regulations specifically do not only remove references to EU bodies and replace them with UK authorities, they also remove the requirements on banks and payment account providers to facilitate the cross-border opening of accounts. It also gives discretion to UK payment account providers as to whether to continue to offer basic bank accounts to customers legally resident in the EU, or indeed whether to keep existing basic bank accounts open. It changes the residency criteria for customers who will be assured access to a basic bank account, restricting them to UK residency and excluding UK citizens who are legally resident in the EU who may hold or wish to hold a basic bank account with a UK provider. It removes the requirement to offer at reasonable charge non-sterling and EU currency services to customers with bank accounts with basic features, including for customers resident in the UK. Where a customer wants to switch from their UK bank account to an EU account, this SI removes the requirement on banks and payment providers to facilitate such cross-border account opening by, for example, providing information on direct debits or transferring a balance when switching. When one reads the list of things that these draft regulations allow for, it is difficult to see how the assertion in paragraph 2.12 of the Explanatory Memorandum that the intention is to continue the objectives of the original regulations can be met.

I do not believe that all of these changes are necessary to correct deficiencies in the retained EU law in a no-deal situation. Why, after we leave the EU, is it necessary for a UK citizen who may be resident in another EU state and who currently holds a basic bank account with a UK provider to find that the UK provider is to be given the discretion to close their account? I do not believe that such a measure is necessary to ensure that the Payment Accounts Regulations operate effectively if we leave the EU with no deal. The Government’s view is that the impact of these regulations on customers will be minimal, but as the Secondary Legislation Scrutiny Committee observed in its November 2018 report:

“We have been told that a UK citizen who is legally resident in the EU may hold a basic bank account with a UK provider, and that under this instrument a UK provider will be allowed to close their account”.

A few hundred account holders may be described as minimal impact, but it may be anything but minimal to the account holders affected who, as the Secondary Legislation Scrutiny Committee observes,

“may well face a good deal of inconvenience if they find that their designated provider chooses to close their account”.

They may find it difficult to secure a basic bank account from another provider.

The response of the Treasury to the committee’s concerns, that an affected customer should be able to get a basic bank account with an EU-based provider—an argument which has been deployed today by the Minister—was qualified by subsequent information provided. I shall quote from the committee again:

“The effect of leaving the EU on a UK customer’s right to a basic bank account in an EU Member State will depend on how that State has implemented the Directive. If a Member State has specified in its local law that eligibility is based on EU residency … a UK customer legally resident in the UK would no longer be automatically eligible for a basic bank account within the EU, once the UK has left the EU”.

If the UK provider decides to cancel their basic bank account, the idea that they can get a basic bank account in another EU state that they are living in may not apply. They may be left without access to a basic bank account. It may well cause difficulties for UK citizens who may have their basic account closed at the discretion of the provider or the bank, as they will be allowed to do under these regulations. Two months’ notice may not be sufficient to get them out of difficulty, and mitigating any problems by trying to get a basic bank account in another EU state may not be possible because they will not be categorised as an EU citizen.

I come back to the Secondary Legislation Scrutiny Committee’s point and ask the Minister for reassurance that these regulations will not be allowed to cause financial difficulty to those affected. It may be a few hundred people, but I do not believe it is necessary for these regulations to subject them to financial difficulty by allowing their UK bank to cancel their basic bank account.

Can I also ask the Minister whether it would be possible to introduce a provision, in the event that we leave the EU without a deal, so that if a bank decides to exercise its discretion and close an existing customer’s bank account, where that customer is a UK citizen it must notify the FCA so it can monitor the impact of the amendment to these regulations?

Finally, can I ask the Minister for an assurance that under these regulations there will be no weakening of the disclosure of information to customers from banks and payment account providers on matters such as fees and charges, and any other matter on which there are currently disclosure requirements to the customer?

I thank the noble Lord, Lord Bates, for his introduction and the noble Baroness, Lady Drake, for drawing attention to the report of the Secondary Legislation Scrutiny Committee’s Sub-Committee A, on which I sit, so I do not have to do it. With the state of my voice, that is welcome.

The issue of note here is that an obligation to service non-UK residents is removed. Many of these will probably be UK nationals and will probably come to the UK sometimes, even though they are resident elsewhere. I am sure that this will be an inconvenience and that is greatly regretted. In the interests of saying that this is not being reciprocated, there has been a lack of generosity of spirit in this statutory instrument. Can the Minister confirm whether there would be any supervisory pressure, under “know your client” provisions, for these accounts to be closed? Will supervisors make it more awkward and put pressure on the banks so that closure is de facto the most likely event?

I also remind the Committee that one of the purposes of this legislation was to ensure that basic bank accounts could be opened in advance for people who were moving around for the purposes of work. Otherwise, you get into a Catch-22 situation where you cannot get a permanent place of residence until you have a bank account and you cannot get a bank account until you have a permanent place of residence. While I was an MEP, I got this in my postbag. Indeed, one of my own children had this problem. We were constantly having to intervene to get these things sorted. If we want to encourage talent and still allow it to come to the UK, why make it awkward? I am sure that those who come for big and well-paid jobs may find that they can open accounts, but what about the more ordinary person? I think that, actually, this is a very bad measure.

My Lords, I thank the Minister for presenting this instrument. When I first read the Explanatory Memorandum, I thought it was good and it convinced me that, broadly speaking, the instrument was doing its job. Then my noble friend Lady Drake decided to share her speech with me and I realised that perhaps I had not fully understood it, but by this point in the proceedings, the Minister had enough questions to answer anyway without me inventing any more.

The point that has come out of the last two speeches is important. The Government often conclude that an impact is minimal because it affects quite a small number of people. The problem with that attitude is that for the people it affects, it affects them 100%. If you cannot get a basic bank account, that is pretty close to catastrophic in the modern world, so I hope that the Minister will have good answers to my noble friend’s points.

My question is one that runs through many of these SIs—the lack of formal consultation. The consultation paragraph states that there has been discussion with “relevant stakeholders”. One has an uncomfortable feeling that the relevant stakeholders are in fact the financial institutions themselves and not the key relevant stakeholders—the consumers. I would be grateful if the Minister could tell us who the relevant stakeholders were and whether they included consumer representatives, and, if not, why not?

I thank noble Lords for their contributions. They rightly focused on basic bank accounts and the impact on people who are potentially vulnerable. I will try to offer some reassurance.

The noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Drake, asked about the consultation. The Treasury engaged with UK Finance, the Financial Conduct Authority and the Payment Systems Regulator to ensure awareness of these changes. The Treasury published the draft instrument and Explanatory Note on 31 October. We also notified leading consumer groups after the publication of the draft instrument to ensure awareness of these changes. We have not received any questions since publication. That may well change as a result of noble Lords’ comments today.

The noble Baronesses, Lady Drake and Lady Bowles, asked how many consumers and basic bank accounts will be affected by the changes. Customers legally resident in the UK, whether UK citizens or otherwise, who hold a basic bank account at one of the nine designated providers will not be affected, as the SI ensures that the nine providers must continue to offer these to qualifying customers.

The noble Baroness, Lady Drake, asked specifically about the impact of the SI on consumers. The impact on the majority of holders of payment accounts in the UK will be minimal. Basic bank account customers may experience a reduction in service as their providers are no longer required to give them access to, for instance, non-sterling EU transactions, although they may still choose to do so if they wish. It will be at the discretion of the providers whether they continue to offer new basic bank accounts or keep existing ones open for customers resident in the EU. We expect that that will affect very few. I accept the point made by the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Drake, that it may have an impact on those people and I will try to give some reassurance in that respect.

The noble Baroness, Lady Drake, asked why it was necessary for the SI to remove the EU residency requirement. Maintaining that obligation on the nine basic bank account providers would be inappropriate in a no-deal scenario when the UK will no longer be part of the EU single market for financial services. She also asked what happened to UK expats who live in the EU and whether they could open new basic bank accounts. Eligibility for basic bank accounts is dependent on residency, not citizenship, so that would be a matter for the member state and the laws that apply there.

The noble Baroness, Lady Drake, requested an assurance that residents will not be in financial difficulty. The spirit of the 2014 agreement, to which I referred in the previous debate, is to provide for the most vulnerable in society. The Government expect banks to honour that agreement in making any changes. The noble Baroness also asked whether the statutory instrument prevents the cross-border opening of accounts. The changes in this statutory instrument only remove the requirement for firms to provide certain support to customers who wish to switch their payment account from the UK to the EU. They do not affect a UK customer opening an account in the EU.

The noble Baroness, Lady Bowles, asked about the consultation and whether banks will close the bank accounts of UK expatriates. The decision to offer a standard UK bank account to a non-UK resident is, and will continue to be, a commercial decision for firms. Financial services firms will continue to provide a range of products that reflect customers’ needs. If a customer’s account is a basic bank account, firms must give at least two months’ notice of closure, which should provide adequate time to open another account. The FCA has been clear that customers do not need to do anything yet and that firms will be in touch with customers should any changes to their products take place in the event of a no-deal exit.

I hope that my assurances and answers have been helpful to the Committee. Again, I will review the Official Report of the Committee’s proceedings to check whether there are any gaps or I have missed anything. If so, I will write to noble Lords. Failing that, I beg to move.

Motion agreed.