Committee (4th Day)
49: After Clause 30, insert the following new Clause—
“Review of penalties for insider dealing and financial services offences
(1) Within six months of the day on which this Act is passed, the Treasury must commission a review of penalties for insider dealing and financial services offences (“market abuse”).(2) The review under subsection (1) must include statistics relating to—(a) the perceived level of market abuse,(b) the number of arrests for market abuse, and(c) the number of successful convictions for market abusein each of the last five financial years.(3) The review under subsection (1) must also contain a summary of steps being taken by Her Majesty’s Government to ensure market abuse offences are identified and punished. (4) Within one month of the review under subsection (1) being completed, the Treasury must—(a) lay the document before both Houses of Parliament, and(b) make a statement responding to the review, including a declaration of whether and how the Treasury will act to—(i) increase the resources available to those charged with investigating market abuse,(ii) modernise and reform the United Kingdom’s suspicious activity reporting regime, and(iii) ensure greater consistency in the intensity of supervision across different parts of the financial services sector.(5) After the requirements under subsection (4) have been met, the Treasury may by regulations enact such reforms of market abuse provisions that are identified in the review.(6) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This probing amendment seeks to understand what steps the Government is taking to improve identification and punishment of market abuse. It asks for the Treasury to outline proposals for enacting recommendations from a 2018 evaluation by the Financial Action Task Force, the global money laundering and terrorist financing watchdog.
My Lords, we now come to the section of the Bill that introduces measures to deter financial crime, whether insider dealing or money laundering. None of us in this Grand Committee can be content with this country’s attempts to limit financial crime. Headlines that cry that London is the “money laundering capital of the world” may embody journalistic exaggeration, but, sadly, they are not that exaggerated.
I will first speak to Amendment 50 in my name and then turn to Amendment 49 in the names of the noble Lord, Lord Tunnicliffe, and myself. I admit that Amendment 50 is constructed in a rather peculiar way, and I am grateful to the clerks for that ingenuity and for allowing me to make what I believe to be an important point concerning money laundering legislation.
The measures in Clause 31, to which Amendment 50 refers, derive from the EU fifth money laundering directive and the UK response to the examination of UK anti-money laundering measures by the Financial Action Task Force. An important outcome of the FATF examination was Her Majesty’s Government at last announcing measures to deal with the scandal of Companies House.
One of the political puzzles of the past 10 years is that Conservative Prime Ministers have regularly referred to the register maintained by Companies House as a gold standard, a beacon of openness and an example to the rest of the world. In fact, the manner in which the register is constructed is the key element in those headlines that describe London as the money laundering capital of the world.
The scandal derives from the fact that Companies House does not verify the beneficial ownership of companies registered there. Companies House is a library in which any shameful book can be deposited. There are so many shameful books that have been deposited, and that is a matter of record. Just to take a couple of the more colourful examples, the Mafia managed to set up one UK firm with a director named as Ottavio Il Ladro di Galline—Ottavio the chicken thief. His occupation was listed in Companies House as truffatore—fraudster. Another company had an address that translated as “Street of the 40 Thieves”. At the moment, the Companies House register includes almost 4.5 million UK businesses, but it operates in much the same way as it did 150 years ago. That means that criminals have been able to set up seemingly legitimate shell companies without even the most basic identity checks.
Consider the case of Mr Kevin Brewer. A few years ago, he launched a campaign to expose how easy it is to fake British company records. He decided in 2013 to register government Ministers, including Vince Cable—the then Business Secretary—and the noble Baroness, Lady Neville-Rolfe, as the directors and shareholders of fictitious companies. The idea was to prove how anyone could form a company in the UK in any name or address that they wished. He used an online service offered by—you guessed it—Companies House. He then owned up. As a result, he was prosecuted by Companies House and fined £12,000. The Government issued a triumphant press release, which is still available on the government website, headlined:
“UK’s ‘first ever’ successful prosecution for false company information”.
It is the only prosecution in 150 years.
A study published by Transparency International in November reported that British shell companies were implicated in nearly £80 billion of money laundering scandals. On top of that, the anti-corruption group Global Witness reported in 2019 that more than 336,000 companies did not disclose their beneficial owner. It also found that more than 2,000 company owners were actually disqualified directors—people who had previously failed to meet their legal responsibilities and were banned from directorships in the future. A further study by, among others, my colleague, Professor Sharman of Cambridge University, found that it was impossible to establish a shell company in the Cayman Islands, the Bahamas or Jersey but it was easy to do it in London.
It should be clear that an open register, as we have in the UK, is no protection against financial crooks. Protection is provided only by verification and regular reverification of beneficial ownership by skilled forensic accountants. At last, in September of last year, under continuing pressure from the Financial Action Task Force, the Government published a document entitled Corporate Transparency and Register Reform. The Minister, the noble Lord, Lord Callanan, wrote in his foreword to the document that Companies House procedures, or lack of them, resulted in,
“Shell companies … set up for no other purpose than to launder the proceeds of crime – committed both here and overseas.”
The noble Lord, Lord Callanan, recommended verification of company data. However, the document contained an ominous sentence:
“This document sets out the actions the Government intends to take in response, subject to funding being agreed”.
Amendment 50 would simply require the Government to keep Parliament up to date with what is happening. After all, this is the biggest money laundering scandal to which the UK has been subject. When will this country acquire an honest register? How much funding has been agreed? Is it enough? When will the entire Companies House register—the whole register—be fully verified? I hope that the Minister will be able to tell the Grand Committee that initial funding has already been agreed, that future funding will be forthcoming and, to ensure that the momentum is sustained, that the Government will be happy to accept this amendment and report regularly to Parliament on the progress towards a fully verified register of beneficial ownership. The Government owe that to everyone who has been betrayed by the lax approach to money laundering.
I now turn to Amendment 49, which takes a wider perspective, seeking a thorough review of Her Majesty’s Government’s efforts to limit insider trading and market abuse, so providing a firm foundation for the measures outlined in Clauses 29 and 30 of the Bill. The rationale for such a review can be stated in brief as this: what is the point of Clause 30; what is the point of increasing the penalties if there are almost no convictions? Hundreds are prosecuted every year for fiddling a few quid from social security; you can count the annual number of prosecutions for crimes in high finance on the fingers of one hand. Consider this comment, published in the Financial Times on 3 November 2019:
“The FCA has previously been accused of taking a light touch approach to white collar crime. A freedom of information request showed the regulator prosecuted just eight cases of insider dealing, securing 12 convictions, between 2013 and 2018.”
There were 12 convictions in five years.
It is not as if there is no financial crime about. Consider this further story, published in the Financial Times on 10 September last year:
“Britain’s financial regulator”—
“is still working on a high volume of investigations into potential wrongdoing by firms and individuals, but delivering a relatively low proportion of clear outcomes at an increasing cost, according to new data.”
The Financial Times continues:
“the Financial Conduct Authority’s annual report provided details of its enforcement actions in the year to March 31 2020, and showed 185 cases were concluded in that period, leaving another 646 ongoing. In the previous year, 189 cases had been closed, leaving 647 open. However, despite this persistently high caseload, only 15 investigations resulted in financial penalties being handed down in the latest 2019-20 period — down on the 16 cases that led to fines in the two previous years.”
So what is going wrong? An important clue is to be found in the section of the 2018 report of the Financial Action Task Force dealing with the substance of UK measures to deal with money laundering and the financing of terrorism. The report states that, with respect to the UK Financial Intelligence Unit, which is the financial division of the National Crime Agency:
“The UK has pursued a deliberate policy decision to limit the role of the UKFIU in undertaking operational and strategic analysis. The UKFIU suffers from a lack of available resources (human and IT) and analytical capability which is a serious concern considering similar issues were raised over a decade ago in the UK’s previous FATF mutual evaluation. The limited role of the UKFIU calls into question the quality of financial intelligence available to investigators.”
Is it not the case that the surest way to deter criminal behaviour is to increase the likelihood that the criminal will be caught? I ask again: what is the point of increasing sentences while, at the same time, reducing the capacity to catch the criminals? When the Minister replies to this debate, will she explain why:
“The UK has pursued a deliberate … decision to limit the role of the UKFIU in undertaking operational and strategic analysis”?
Surely now is the time for a thorough investigation into the Government’s persistent failure to prosecute crime in our financial services industry. Accepting Amendment 49 will be a start. I beg to move.
My Lords, it is a pleasure to speak on day four of proceedings in Committee on the Financial Services Bill. In doing so, I declare my interests as set out in the register.
I want to speak to Amendment 51, standing in my name. The purpose of this new clause can be simply stated: what is the purpose of the KYC—“know your customer”—requirements? It is one of the top TLAs—three-letter acronyms—in financial services, but is it fit for purpose? Does it achieve what we would want? Does it feel modern in outlook? Does it feel inclusive? It not only goes to the heart of a number of other amendments in this group; it really is a key underpin, and the adoption of this amendment would transform our KYC system and approach in this country. We have to ask those questions: what do want KYC for; what does it need to contain; when do we need it, and in what form?
Amendment 51 seeks, on passage of the Bill, a review of KYC requirements that considers a number of elements in order to seek to transform our approach to KYC. My first point concerns the question of inclusion, and I draw this broadly. Whom do we want to come within, in what form and through what means? For example, asking for paper documentation seems not only outmoded but somewhat exclusionary. Where is the level of efficiency in the current provisions? We have the ability to have “atomic settlement”. The current KYC feels a million miles away from a settlement in a millionth of a second. My final point addresses exactly that question of outdatedness. We have one of the greatest financial services sectors in the world. The big bang in the 1980s revolutionised the City of London, but it goes much beyond that when we consider our role in fintech, not just in London but across the UK, and the Kalifa review on that very subject, published only last week. We are leading-edge in so many ways when it comes to our financial services. KYC in no sense reflects, represents or leads that technological position.
If this amendment were to be seriously considered, if not adopted, we could look at different means of ensuring KYC. We could look at attributes and elements that would assist and give real-time assurance, giving elements to those who need them—things which operate absolutely in real time and are to be relied on, rather than bits of paper, bits of supposed identification, which hark not from a 20th-century but a 15th-century approach to identification. That brings me, finally, to the whole question of digital-distributed ID, which I will speak on later in Committee. That goes to the heart of so much of solving the KYC puzzle. If we could deliver an effective and efficient distributed ID system for individuals and corporate entities, we would transform the position regarding KYC.
I look forward to hearing the comments of my noble friend the Minister on Amendment 51.
My Lords, I speak to Amendment 51A, which invites the Government to reduce the number of anti-money laundering supervisors so that we can have consistent application of standards and effective regulators.
Dirty money is a huge danger to every country on this planet. The full extent of dirty money sloshing around in the UK is not known, although some authorities estimate that around £100 billion a year may be laundered through our banking and financial system. Transparency International’s report, Hiding in Plain Sight, examined 52 cases of global corruption and noted that despite a plethora of form-filling and regulators, some 766 UK-registered business entities were involved in laundering stolen money.
The threat of money laundering to national security is well documented in the Intelligence and Security Committee’s July 2020 report, Russia, which stated that
“the arrival of Russian money resulted in a growth industry of enablers—individuals and organisations who manage and lobby for the Russian elite in the UK. Lawyers, accountants, estate agents and PR professionals have played a role, wittingly or unwittingly, in the extension of Russian influence, which is often linked to promoting the nefarious interests of the Russian state.”
Large sums of dirty money cannot be moved or concealed without the active involvement of accountants, lawyers, and financial experts. These enablers must be tackled, and without effective regulation that is not possible.
However, the UK’s fragmented regulatory system for dealing with money laundering is highly deficient. There are 25 anti-money-laundering supervisors. These include the Financial Conduct Authority, HMRC, the Gambling Commission and 22 other bodies, mainly trade associations connected with accountancy, audit, bookkeeping and legal and notarial services. The list of 22 includes bodies such as the Association of Accounting Technicians, the Association of International Accountants, the Institute of Certified Bookkeepers, the Institute of Chartered Accountants in England and Wales, the Law Society and sundry other trade associations. Having twenty-five supervisors results in duplication, waste, inefficiency, poor co-ordination, inconsistency and obfuscation.
In September 2016, the Committee on Standards in Public Life, in its report, Striking the Balance: Upholding the Seven Principles of Public Life in Regulation, stated that the seven principles of public life apply to all regulatory bodies, and the Government agreed. These include independence and public accountability, but for some reason the Government do not apply these principles to anti-money laundering supervisors. Accountancy and law trade associations have no independence from their members. In any regulatory system, there is a concern that regulators would be captured by those who are to be regulated, but that is the starting point in AML supervision by trade associations.
In October 2011, the Government announced that they would make quangos more democratically accountable, but they have failed on that front too. Of the 25 AML supervisors, 22 are not subject to the freedom of information law, even though they are an explicit arm of the state. Perhaps the Minister will be able to explain this anomaly. Their exclusion from FOI means that the public have no opportunity to scrutinise their practices.
The Government’s faith in regulation by trade associations is routinely punctured by the Government’s own reports. In October 2017, a joint report by the Treasury and the Home Office, entitled National Risk Assessment of Money Laundering and Terrorist Financing 2017, summed up key risks around the accountancy sector:
“complicit accountancy professionals facilitating money laundering; collusion with other parts of the regulated sector; coerced professionals targeted by criminals; creation of structures and vehicles that enable money laundering; provision of false accounts; failure to identify suspicion and submit SARs; and mixed standards of regulatory compliance with relatively low barriers to entry for some parts of the sector.”
The report went on:
“Accountancy services have also been exploited to provide a veneer of legitimacy to falsified accounts or documents used to conceal the source of funds. For example, law enforcement agencies have observed accountants reviewing and signing off accounts for businesses engaged in criminality, thereby facilitating the laundering of the proceeds. In many cases accounts have been falsified by criminals and unwittingly signed off by accountants, while in others accountants have been assessed to be complicit”.
That is the state of money laundering and the world of accounting.
However, rather than consolidating the number of regulators and thereby securing consistent application of standards and law, in January 2018 the Government created a new body called the Office for Professional Body Anti-Money Laundering Supervision, better known by the acronym OPBAS. At considerable cost, it became a “supervisor of the supervisors” and oversees the 22 trade associations. The formation of OPBAS is an acknowledgement that all was not well with the regulatory role of trade associations.
A year later, on 12 March 2019, the OPBAS director of specialist supervision said:
“the accountancy sector and many smaller professional bodies focus more on representing their members rather than robustly supervising standards. Partly because they don’t believe – or don’t want to believe – that there is any money laundering in their sector. Partly because they believe that their memberships will walk if they come under scrutiny.”
The OPBAS Director went on:
“We found that some did not fully understand their role as an anti-money laundering supervisor. 23% had no form of supervision. 18% had not even identified who they needed to supervise. Over 90% hadn’t fully developed a risk based approach and had not collected all the data they needed to form a view about their riskiest members and their services. Supervision was often under resourced – and in some cases, there were no resources.
We found that for many supervision wasn’t important. It was only an add-on. This means it often wasn’t on the agenda and for around half, there was insufficient senior management focus. For 20%, it wasn’t overseen by the governing bodies. In some of the professional bodies, where supervision had been outsourced to another provider, there was minimal oversight of the work being done.”
The director also said:
“We also found that in all but 2 professional bodies, processes for handling whistleblowing were inadequate. We found that 56% of professional body supervisors had no whistleblowing policy in place at the time of our assessments.”
There you have it—a powerful indictment of the folly of relying upon trade associations for regulatory purposes. They do not want to be robust regulators because of the concern that “their memberships will walk”.
The multiplicity of regulators is wasteful, as it results in duplication and does not lead to a common application of standards. If OPBAS is considered necessary to oversee the regulatory practices of 22 trade associations, what makes the Government think that the practices of the other three AML supervisors—HMRC, the FCA and the Gambling Commission—are aligned? Is there any consistency among the regulators? In the interest of consistency, will the Government bring the other three AML supervisors under OPBAS’s jurisdiction as well? Perhaps the Minister could inform us.
I am sure that the Minister will defend the current state of affairs and tell us that the trade associations have somehow turned a new leaf and are now different from what they used to be. But the fact remains that the professional bodies have no independence from their members and cannot deliver robust and effective regulation. Just how many more supervisors of the supervisors will the Government create? Even if they do, they still cannot change the Nelsonian organisational culture of the accountancy and trade associations. The best way to move forward is to reduce drastically the number of AML supervisors, which is what Amendment 51A invites the Government to do.
My Lords, I am grateful to my noble friends and other noble Lords who signed Amendments 81, 82 and 83, which, with Amendment 84, take our debate in a slightly different direction from the other amendments in this group. I also thank my noble friend Lady Penn and the Economic Secretary, John Glen, for meeting me last week to discuss my amendments and for his letter received at 11 am. As can be seen from the names of those noble Lords who signed these amendments, they are driven not by party-political motives but by a desire to make the law of corporate criminal responsibility fit for the modern age.
Reform of this aspect of the criminal law is overdue. The Government accept that. I will raise the salience of this question and remind this Government, as I reminded their predecessors, that the current state of the law does not take account of modern company practice. The difference between us in substance is not that there should be reform but what sort of reform and when. I am glad to have this opportunity to explain my concerns and I apologise in advance to noble Lords if, in speaking for too long, I try the patience of the Grand Committee.
This is not the first time that I have tried to encourage reform of corporate criminal liability. I was persuaded more than 10 years ago when studying American law that the way we deal with corporate criminal liability is outdated. I was then trying to work out how best to introduce deferred prosecution agreements, or DPAs, into this jurisdiction—they were enacted via the Crime and Courts Act 2013—and I became convinced that, in an era of large, international companies with hundreds of thousands of employees, with main, local and regional boards in many different geographical locations and with turnovers sometimes larger than the GDPs of some small countries, what had worked in the 19th century was no longer suitable in the 21st.
A company, although a separate legal personality, is an artificial construct and can commit a criminal offence that requires, for example, proof of dishonesty only through the agency of a human. In 1915, the then Lord Chancellor, Viscount Haldane, giving judgment in the case of Lennard’s Carrying Co., said that a corporation is
“an abstraction. It has no mind of its own any more than it has a body of its own”.
Our law required a human directing mind and will to fill that vacancy. Equally, whereas a human being convicted of bribery can be sent to prison, a company cannot.
At present our law requires prosecutors to satisfy the identification principle, which essentially asks whether a person can be identified as the directing mind and will of the company and is thus capable of fixing the company with criminal liability for the act or omission of that identified individual. The difficulty in satisfying the identification principle has led to cases where only individuals, but not their employers, have been charged. A recent example is the phone-hacking scandal. Another example of the difficulties caused by the identification principle were the cases involving Barclays Bank and some of its senior staff in 2018.
One hundred and fifty years ago, companies were mostly small concerns that traded locally. Of course, many businesses were not incorporated at all, but there were exceptions to that general rule. As British maritime power and commercial reach became increasingly global during the 18th century, and developed yet further through the 19th century, company structures became more sophisticated. Financial services, be it in banking, capital raising or insurance in the City of London, kept pace to enable these advances. That said, leaving aside mechanical advances, a milling business of 1900 was not all that different from a milling business of 1800; had the managing director of that milling company bribed someone in the late Victorian age, it would not have been difficult to determine whether he could be identified as the directing mind and will of the company so as to fix it with criminal liability for the corruption, in addition to any that attached to the director.
Although the identification principle received its then-highest judicial approval in the Lennard’s Carrying Co. case in 1915, that principle had been developed during the 19th century, when most English companies were run by fewer than half a dozen people. It is now plainly an inhibiting factor when prosecutors are considering cases involving large, complex companies with international and country boards, operating around the world. In 1912, the US courts recognised that the identification principle was not suitable in a modern industrial economy, whereas three years later our highest court affirmed it. It is time that we caught up.
Since 1912, an American company can be liable for a criminal offence committed by an employee in the course of his employment for the benefit of the company. The offence may also benefit the employee, but if it benefits the company it, too, is criminally liable. It is the criminal law equivalent of the concept of vicarious liability that we have in English civil law. It is not complicated but, plainly, each case of suspected corporate offending will be highly fact specific. I would like to have that system here, but it is not going to happen. I therefore look to the failure to prevent model, not least because it is now well established in our own criminal law.
In 2011, US federal prosecutors told me that they greatly admired the failure to prevent bribery offence in Section 7 of the Bribery Act 2010. They said that the United Kingdom led the world in countering corporate crime because of that new offence. More recently, the Criminal Finances Act 2017 introduced a corporate offence of failure to prevent facilitation of tax evasion. The noble Baroness, Lady Bowles, may talk about that in support of her Amendment 84.
In the case of Tesco Supermarkets Ltd v Nattrass in 1971, Lord Reid held that, in order for liability to attach to the actions of a person, it must be the case that
“the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company … If it is a guilty mind then that guilt is the guilt of the company.”
That case turned on whether a store manager who broke the Trade Descriptions Act was the directing mind and will of the company. He plainly was not, but Lord Reid’s words are relied on in pretty well every case where a company is charged with an offence because of what an employee is alleged to have done. As Lord Justice Davis said in the 2018 Barclays Bank case, large modern companies are complex organisations not so that they can avoid criminal responsibility but to facilitate their business operations. They cannot be expected to have a detailed knowledge of what every manager throughout the world is doing, or to be held criminally liable for everything that they do. I agree.
That will not happen under these amendments but, under the current directing mind and will test, corporations involved in wrongdoing face little prospect of prosecution. As a result, corporate compliance procedures in the UK could slip. One of the reasons why Section 7 was introduced into the Bribery Act was to improve corporate behaviour. It has had an important preventive effect. When companies face little consequence for failing to maintain procedures to prevent financial crime, the business case for putting resources into implementing these procedures becomes harder to make.
If the failure to prevent regime were to be introduced for other economic crimes, such as those in my amendments, the impact on corporate standards would be significant because it would focus companies’ attention on having the right measures in place to prevent the commission of these crimes. It would also help us to maintain our reputation for the highest standards of business integrity, as we refocus our attention on building trade links around the world and on a future outside the EU.
The failure to prevent offence carries strict liability for a commercial organisation: a bribe paid anywhere in the world by an “associated person” with the intention of benefiting the company will cause it to commit an offence, and the only defence is that it had in place “adequate procedures” to prevent bribery. An “associated person” is defined under the Bribery Act as a “person who performs services” for or on behalf of the organisation; this may include employees, subsidiaries and agents. This was intended to embrace the whole range of persons connected to an organisation that might be capable of committing bribery on its behalf. It may include joint venture partners or entities, depending on the circumstances.
Under the law as it is now, companies can be prosecuted for not having in place systems to prevent a predictable crime here or abroad. This approach has proved effective. There have been prosecutions under Sections 1 and 7 of the Bribery Act, but Section 7 has been used to greatest effect in deferred prosecution agreements. I declare my interest as a barrister in private practice who has acted for both the Serious Fraud Office and companies accused of offences under the Act, but my experience of cases where companies have failed to prevent bribery by their associates tells me that the Act is not just necessary but works both to catch and deter corporate criminal conduct. I suggest that it would work as well with the offences in these amendments.
On proper analysis, my amendments are not a radical departure from the current state of the law but a small extension of it. Government and Parliament created the failure to prevent regime a decade ago. I am doing no more than increasing its ambit beyond bribery and tax offences to a few more financial and economic crimes. My amendments are limited to the UK financial system.
Amendment 81 says that a “relevant body”—in essence, a commercial organisation—commits an offence if a person associated with it commits an “economic criminal offence” in the course of using or providing financial services
“that might affect the integrity of the UK financial system.”
The expressions “relevant body” and
“the integrity of the UK financial system”
have the same meanings as in the Criminal Finances Act 2017 and the Financial Services and Markets Act 2000. For the purposes of this amendment, an economic criminal offence is defined by a list in paragraphs (a) to (g) of subsection (2) and includes, for example, conspiracy to defraud, theft and false accounting. As in the Bribery Act, there is a reasonable prevention procedures defence. “Reasonable” does not mean “perfect” so it is not a meaningless defence.
Amendment 82, which also has the same reasonable prevention procedures defence, defines an economic criminal offence as any of the approximately 50 offences
“listed in Part 2 of Schedule 17 to the Crime and Courts Act 2013”.
Those are offences that can be the subject of a DPA. Again, there is nothing radical there. Amendment 83 is in similar terms to Amendments 81 and 82, save that it relates to the failure to prevent a “criminal financial offence”, which is defined by the same list in the Crime and Courts Act used in Amendment 82 and a similar, but not identical, list of offences to that in Amendment 81. There is, again, a reasonable prevention procedures defence.
Clearly, we need laws that will make a real difference and deter crime. The approach taken in the Bribery Act and the Criminal Finances Act has proved its worth. Surely, it is now time to extend the tried-and-tested failure to prevent regime to the offences referred to in these amendments. Of course, I expect that they will be met by departments from the “Ministry of Paperclips” through to the “Department of Circumlocution”, as non-government amendments often are, with much sucking of teeth and earnest furrowing of brows. We have all heard the reasons why an amendment cannot be accepted, be it its drafting, its being in the wrong Bill, its public expenditure implications or its timing—and anyway, the Law Commission is about to look at this aspect of the law. I promise noble Lords that I wrote those words before I received the Economic Secretary’s letter this morning.
All Governments suffer from an aversion to ideas that they did not invent. That is not a criticism directed at my noble friend the Minister, I assure her, but of course this is an idea invented not by me but by government. Gordon Brown’s Labour Government introduced the Bribery Act, and David Cameron’s coalition Government took it on and ensured that it received Royal Assent. It had all-party support. Theresa May’s Government brought in the Criminal Finances Act 2017, to widespread acclaim. These amendments obediently follow those statutes. If the Financial Services Bill is not the right Bill for these financial offences, what on earth is? Surely, the Treasury can make a good case for adding these provisions, on financial and economic crime connected to financial services, to the Financial Services Bill. They will not cost money but, like DPAs, enhance our national economic reputation and, in the right case, see large fines flow into the Treasury.
When someone steals, cheats or commits bribery in the United Kingdom, there is no problem, assuming a sufficiency of evidence, in prosecuting them for that crime. When a company commissions or benefits from a crime committed by an employee, subcontractor or third party, our law is weak. These gaps in corporate criminal law have long yawned before us and urgently need to be addressed, so that companies can be encouraged to improve their behaviour or be prosecuted effectively. The burden is surely now on the Government to show why these amendments should not be made through this Bill.
My Lords, I remind the Committee of my interests as in the register. I have two amendments in this group, one on facilitation of financial crime, which is also signed by the noble Lords, Lord Hodgson of Astley Abbotts and Lord Rooker, and my noble friend Lord Thomas of Gresford, and a second amendment relating to whistleblowers.
There is much else of merit in this group. In particular I support the comments of the noble Lord, Lord Eatwell, concerning catching, and willing the means and money to catch, perpetrators of financial crime. While I have hounded the noble Lord, Lord Callanan, on this issue, I do see the point of pressing the Treasury on funding.
My amendment on the facilitation of financial crime is also about the Treasury willing the means. It is similar to the amendment tabled by the noble and learned Lord, Lord Garnier. We are not in competition; there are more noble Lords wishing to show interest in this topic than can fit on a single amendment. Unfortunately, we did not get to this amendment on Monday and my noble friend Lord Thomas of Gresford is unable to speak today. He was deeply engaged in the Bribery Act provisions, so his contribution will be missed.
In addition to the measures outlined by the noble and learned Lord, Lord Garnier, my amendment, Amendment 84, has a final paragraph that deals expressly with the conviction of a director or other manager who is proved to be responsible for the systems failure of the corporate body. A facilitation or failure to prevent amendment has a particular resonance in this Bill for two reasons: first, because the FCA has a specific remit to prevent the use of the financial system in financial crime; and secondly, because the Treasury, the sponsor of this Bill, has already availed itself of the mechanism with regard to tax evasion. As a believer in the mechanism, it seems appropriate for Treasury to avail itself of it again in relation to the financial system.
The tightening up of corporate systems against bribery following the Bribery Act is well documented, and what better way is there to enhance the reputation of the UK’s financial system at the point when it must protect and enhance its credibility than forcing similar tightening against financial crime? We already know well the reason for needing such offences. It is the old-fashioned way that criminal law works. Having to establish a directing mind is increasingly impossible given the complex board structures of large firms. Indeed, the principle of requiring a directing mind encourages what has been called “organised irresponsibility” by Pinto and Evans in Corporate Criminal Liability.
I know there is some reluctance in the Ministry of Justice, which sat on its hands for ages after its call for evidence on corporate liability, to which I made a submission, and then said there is no new evidence. That was really a bit rich, given that the call for evidence background document itself gave a good exposition of how bad matters are and of many of the reasons why evidence of failures in prosecutions is relatively scant. That is exactly why there is no new evidence—because prosecutors know they cannot succeed against large companies and give up.
Nevertheless, the issue has been sent off to the Law Commission, which has already said in its 2010 paper, Criminal Liability in Regulatory Contexts, that
“the identification doctrine can make it impossibly difficult for prosecutors to find companies guilty of some … crimes, especially large companies”.
In its 2019 paper on suspicious activity reports, it said:
“The identification doctrine can provide an incentive for companies to operate with devolved structures in order to protect directors and senior management from liability.”
The current common law “directing mind” principle is also unfairly discriminating to small businesses. The Crown Prosecution Service’s legal guidance, under “Further Evidential Considerations”, states:
“The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself.”
Given the general guidance for prosecution that there must be a “realistic prospect of conviction”, it is no wonder that prosecution evidence is scant and statistics show a preponderance of prosecutions against small companies. In its response to the MoJ call for evidence, the SFO said:
“In its current form, the law relating to corporate misconduct is both unjust and unfair and in need of urgent reform.”
Note the use of “urgent”, not “kick down the road”.
It is time for the Treasury to be less selfish and to help those other than the Revenue who are defrauded by expanding the use of this mechanism beyond tax collection, and to catch those threatening the integrity of the financial system by using it to commit financial crime.
My whilstleblower amendment suggests that regulators be obliged to give evidence when it is relevant to a whistleblower seeking redress in an employment tribunal. I have tabled it to probe the present state of play, which I understand is that they do not give evidence, indeed decline to do so, even when the whistleblowing has been important and valuable to them. This gives entirely the wrong message and looks like the regulators again being too cosy with the companies they regulate. If they are too frightened to be seen to disturb that cosiness, perhaps it should be made mandatory so that they cannot shy away.
The second part of the amendment suggests making it a behaviour that is not fit and proper for a person in authority to seek to identify, dismiss or penalise a whistleblower. We all know the case of Barclays CEO Jes Staley trying to identify a whistleblower and being let off with a fine that was insignificant for him, while the industry had thought it was an action bad enough to merit removal under the new senior managers regime. The net consequence is that the senior managers regime has been undermined and the regulator has again shown its fear of regulating behaviour in large banks. It would be interesting to know what special pleading went on to achieve that result. Was the PRA involved, rather like its special pleading to US regulators on HSBC? Was the Treasury involved? Whether it was or not, it was certainly a disaster. It is now time to make amends and show that the balance of protection lies with the whistleblower and not with bank executives.
My Lords, I shall speak to Amendment 136, which is in my name. I tabled the amendment because of concerns about the lower levels of responsibility placed on appointed representatives and the increased risk of poor financial advice that this poses.
The objective of the senior managers and certification regime to influence an individual’s behaviour by making them personally accountable to the regulator is one that I agree with and it was the correct response to the culture that had arisen in the City of London prior to the financial crash in 2008. I know that some Members of this House have criticised the application of the senior managers and certification regime, or lack of it, by the FCA, and I agree that it is worrying. However, I do not want to comment on the effectiveness of the SMCR but to remedy an anomaly that exists within the current framework.
The SMCR currently applies to directly regulated financial advisers, yet it does not extend to those who are appointed representatives. This anomaly means that, while a directly regulated adviser carries a personal responsibility for the quality of the advice they provide to their customer, no such responsibility is incumbent upon the adviser who is an appointed representative. This is despite the reality that a customer seeking financial advice is unlikely to know the difference between the two types of adviser and the possible effects that this might have on the quality of the advice they receive.
The requirements of the SMCR mean that a directly regulated adviser faces higher costs and carries greater personal responsibility for their actions than they would if they were an appointed representative, despite doing the same job. I want to be clear that this is not to say that those advisers who are appointed fail to provide sound advice. As with most instances of malpractice within the financial advisory sector, the activity of a minority will, by virtue of their actions, tarnish the reputations of the majority of diligent advisers—whether directly regulated or appointed representatives. However, it is self-evident that lower levels of regulatory responsibility increase the risk of poor advice.
This amendment corrects that anomaly by giving the FCA the power to extend the SMCR requirements and responsibilities to appointed representatives. Currently, an appointed representative is regulated through a principal firm which carries the relevant responsibilities and is directly regulated by the FCA. Transferring responsibility from the principal firm to the appointed representative extends the current framework to this overlooked anomaly and places responsibility on the appointed representative. Rather than adding an additional regulatory burden on to the principal firms, this change would be to their benefit. Extending the SMCR to appointed representatives and making them personally responsible for their actions will significantly reduce the principal firm’s own regulatory risk.
Furthermore, it will reduce the risk of poor or reckless advice being given to consumers within the appointed representative regime and level the playing field between directly regulated advisers and those who are operating as appointed representatives. This amendment would remove the distinction—largely invisible to customers—in the regulations that oversee directly regulated advisers and appointed representatives and increase regulatory confidence in the diligence of financial advice given by all advisers.
From my conversations with individuals within the financial services, it is understood that the current regulator—the FCA—would welcome the ability to extend the SMCR to appointed representatives but currently lacks the power to do so. Although I obviously cannot speak for the FCA on this matter, or on the validity of the conversations I have had, similarly I have no reason to doubt the sincerity of its comments or concerns about the increased risk that the current anomaly poses.
This amendment would be a small but positive change to the Financial Services Bill by ensuring that robust and responsible regulation applies to all those who provide consumers with financial advice. Extending the SMCR to appointed representatives would directly benefit customers, by ensuring that all advisers have a personal responsibility for the advice provided, level the playing field between all financial advisers and reduce the risk to the customers and the relevant principal firms.
Finally—I have to confess that I am not quite sure of the proper process here—I had hoped to explore the possibility of tabling an amendment for this stage that would mandate the providers of deposit or credit accounts to provide voluntary debit card and credit gambling blockers. Unfortunately, I have simply not been able to get it ready for Committee, and I apologise for that, but I would be glad to speak with the authorities and the Minister on this amendment that I hope to bring later on.
My Lords, I apologise for the inadvertent interruption to the Committee’s proceedings on Monday. I declare my interests, as shown in the register.
I have sympathy with the intentions of all the amendments in this group. I have added my name to Amendment 51, in the name of my noble friend Lord Holmes. I also support Amendment 84, in the name of the noble Baroness, Lady Bowles. I have added my name to Amendments 82 and 83 in the name of my noble and learned friend Lord Garnier. All these amendments relate to confidence in our financial system, whether of customers using financial services or of corporates—both domestic and overseas—engaging with British firms in our financial services sector. Both of these are important.
In his introduction to Amendment 51, my noble friend Lord Holmes clearly explained the need for a review of the “know your customer” regulations, and I agree with him. That, hopefully, could help to improve customers’ confidence in the suitability of products sold to them. One example would be the sale of annuities by firms without having previously asked what state of health the customer was in and whether the annuity they were being quoted was at all suitable for them. Another would be credit companies extending credit without necessarily knowing the credit position of the customer. I do hope that the Government may agree to a review, whether in the context of the Bill or not.
Amendments 82 and 83, so comprehensively and expertly spoken to by my noble and learned friend Lord Garner, would strengthen corporate criminal law to ensure that companies do not profit from criminal acts committed by their employees. These companies need to have much stronger reasons and incentives to ensure that crimes are avoided, rather than blind eyes being turned, so that we have a zero-tolerance approach for corporates. These amendments, in the name of the noble and learned Lord, supported by the noble Lords, Lord Rooker and Lord Faulks, demonstrate this. A change to corporate practice is long overdue, so that senior managers in financial services firms will themselves change their procedures to try to prevent employees committing financial crimes and will install adequate processes to demonstrate that they have taken this issue seriously. I am grateful to my noble and learned friend Lord Garnier for raising this issue.
The pre-emptive nature of financial services processes that can avoid problems needs to be encouraged. These amendments could do this and would be a welcome addition to our financial landscape. All too often, firms and, indeed, regulators, seem to be taken by surprise when offences occur and then have to react to them, rather than doing more to prevent the wrongdoing occurring in the first place. I hope that my noble friend the Minister will consider these amendments sympathetically and that the Government will accept them or bring forward their own version. They would be a useful addition to this legislation. I will now mute myself.
My Lords, this has been a fascinating debate on a fascinating part of the Bill. I know that progress has been slow in Committee and I certainly do not intend to speak for too long. In fact, most of what I was going to say has been covered. I will make a few comments in support of Amendment 84, but first, I point out that I certainly support the speeches of my noble friends Lord Eatwell and Lord Sikka. My noble friend Lord Eatwell made the point about the history of dealing with this in Companies House. I remember reading about Kevin Brewer.
I also remember the remarkable speech in, I think, September 2015 in Singapore by David Cameron when he was Prime Minister; it foreshadowed a lot of change in this area regarding access to beneficial ownership, which seems to have been buried. It was absolutely solid, but obviously it was not supported by those who followed him. It is certainly worth looking back on.
The other issue is the reluctance regarding the financial intelligence unit. It is almost the same as the Home Office’s reluctance to institute an inquest when we had the murder by polonium in London. We had an inquest in that case only after the family had been to court. The Home Office’s defence for having no inquest was the effect on international relations. The reluctance to operate on money laundering is exactly the same. I am sure that the Minister will not admit that—he probably has not been given the evidence for it—but the suspicion has to be that the effect on international relations is slowing matters down.
My noble friend Lord Sikka made the point on his Amendment 51A, which I much support, about the trade bodies and the anti-money laundering organisations. It is exactly the same in property transactions. I remember a Bill from a couple of years ago, when a dozen or more organisations were involved in checking money laundering property transactions and they were all trade bodies. Trade bodies will not operate that way. They exist only because of income from their members. It is exactly the same situation. Now we have regulation in secret. That is the real danger: it is regulation in secret by bodies that cannot be checked on.
Amendment 84 was admirably spoken to by the noble Baroness, Lady Bowles, so I do not intend to go over the detail, but I will add a few points based on the briefing I received before Second Reading from Spotlight on Corruption, which was incredibly helpful. As has been said, bribery and tax evasion are already on the statute book in terms of failing to prevent crime, so what is the difference in including false accounting, fraud and money laundering? By the way, I might say something about the Chancellor’s very last point in his Budget, about free ports. I read the report yesterday from UK in a Changing Europe. The scope for money laundering via free ports is enormous. That will certainly have to be added to the list.
The amendment would widen the scope of the existing statute book: this is not reinventing the wheel. It is supported by the Treasury Select Committee and the prosecutors. In the consultation that took place—I know that it was some ago—it was supported by more than 70% of those who responded. The list of examples given by Spotlight on Corruption of companies that could not be prosecuted or brought to book for corporate wrong- doing in recent times—whether it was Serco, Olympus or Barclays—is enormous. I do not see why they should be allowed to get away it, but there are gaps in the law.
I am not an avid reader, but it is always worthwhile reading the manifestos of the various parties. I do not read too many of my party, by the way, but the 2015 Tory manifesto made this commitment, which resulted in the consultation. But the consultation closed three and a half years ago. It has just been one delay after another. It shows a lack of commitment and a lack of drive from the top. If the drive from the top is there, things happen in government—that is the key that I picked up during my 12 years.
The key benefit of the amendment is greater fairness for how large and small companies are held to account. It is dead easy. The small companies are the ones that are gone after by the prosecutors: they are low-hanging fruit and it is easy. That can make the numbers look good, but it is not fair.
Of course, bringing the UK into line with international standards of corporate crime is where we come up against our friends in the European Union. This is a situation where UK companies operating in the European Union are going to operate to a higher standard than they do at home. It is preposterous. It is going to make the UK top of the list for those who want to engage in money laundering. It puts the UK’s reputation in tatters.
The charge that my noble friend Lord Eatwell made about London being the money-laundering capital is true. There are so many different allegations and they are tied up with the operation of many of our blue-chip accountancy firms and blue-chip corporate lawyers and legal firms, because these actions cannot take place without the acquiescence of these home-based enablers.
My final point is the obvious one. The amendment would bring these offences into line with bribery and tax evasion. Why leave a big gap? Bribery and tax evasion can and do involve money laundering and fraud on a grand scale. It is absolutely inconsistent to have different models operating for different economic crimes, where the crimes are linked. I look forward to listening to the Minister get out of this one.
My Lords, it is a pleasure to follow the noble Lord, Lord Rooker, and I very much agree with his view on freeports. These are entirely the wrong direction of travel, opening up the UK even further to corruption and fraud. I also agree with him about the need to help small companies. They face an extremely un-level playing field of heavy enforcement, while they do not have the same options—happily—for tax dodging, fraud and corruption as the large ones have and, all too often, exercise.
I commend the noble Lord, Lord Eatwell, for his hugely powerful speech. I will use social media to ensure that it gets as wide a circulation as possible. I offer the Green group’s support for Amendments 49 and 50. I disagree with the words of the noble Lord on only one point. He asks what is going wrong. I would say that this is not a failure of design; it is not things going wrong from intention. This is what our financial sector has been designed to do and has refined its practices for over centuries. We have been robbing the world blind for centuries.
I draw here on the work of the anthropologist Jason Hickel, who notes that during the entire 200-year history of British rule in India there was a zero increase in per capita income. In fact, during the last half of the 19th century, when the British had most control, the income in India collapsed by half. The average life expectancy of Indians dropped by a fifth from 1870 to 1920. The financial sector was central in sucking the lifeblood out of India and many other parts of the Empire.
The Grand Committee will not address that today, although I note that last night Bristol City Council passed a measure aiming to start to do so. However, we can start preventing the damage that we continue to do every day: the estimated £100 billion a year in dirty money washing into London that the noble Lord, Lord Sikka, referred to, which all these amendments, in their various ways—all positive—seek to deal with.
It is worth thinking about that figure of £100 billion. That is roughly the cost of the NHS. We often hear white-collar crime described as victimless, but it very much is not. It is the equivalent of the NHS—doctors, nurses, essential medical treatment and equipment—being taken away from poor people around the world. People die in large numbers as a result of these crimes, which are happening just down the road from where your Lordships’ Committee is sitting. We hear much talk of global Britain and of finding a new place in the world after Brexit. Well, this is a world that is increasingly intolerant of bribery, corruption and money laundering, something that the recent US election result can only contribute to.
I will be reasonably brief, as I want to save some of the time that I might have used here for later, and the positive improvements outlined here have already been efficiently, effectively and powerfully explained and advocated. I will briefly mention Amendment 51A, tabled by the noble Lord, Lord Sikka. It talks about consistency, effectiveness and efficiency. I wonder how the Government can possibly be opposed to efficiency in regulation, something that they often talk about.
I have a couple of specific points around the group containing Amendments 81 to 84, particularly Amendment 81, tabled by the noble and learned Lord, Lord Garnier, and signed by the noble Lords, Lord Rooker and Lord Faulks, and me. In speaking to these amendments, a number of speakers have referred to reports by Transparency International, the Tax Justice Network, Spotlight on Corruption and other campaigning and expert groups, but I want to make reference to a report published last week by the Organisation for Economic Co-operation and Development, Ending the Shell Game. It covers criminal professional enablers, who are described as
“a potpourri of whizzes with special skills, including tax advisers, wealth managers, lawyers, accountants, company formation agents and trust companies”—
the kind of people whom these amendments seek to address and whose behaviour they seek to rein in. The report notes that many member countries have poor track records in holding these sectors to account.
The OECD is not a radical campaigning group but very much a mainstream organisation. Its report recommends tougher laws to hold these enablers criminally liable, as we are aiming for here. Surely the Government must act. If they will not listen to the experts here in Grand Committee, maybe they will listen to this group and consider how the rest of the world sees this. The report also says that countries should create national strategies to deal with the problem of professional enablers. Perhaps in responding, the Minister can indicate whether the Government plan to follow this recommendation, if not now, perhaps through correspondence in the future.
My Lords, this is a large group of amendments and I shall not comment on all of them. I had not intended to speak about Amendment 51A, to which the noble Lord, Lord Sikka, spoke a while ago, but the way in which he framed his comments has prompted me to do so. The noble Lord persistently used the term “trade associations” to describe the professional bodies that are involved in supervisory activities in relation to money laundering. I declare an interest as a member, and former president, of the largest of the professional bodies to which he referred, namely the Institute of Chartered Accountants in England and Wales.
The ICAEW does act as a regulatory body for its members in relation to money laundering, as it does in relation to other activities, but its members carry out as professionals. This activity is overseen by an independent regulatory board, which is chaired by a QC and has lay members on it. I fear that the noble Lord, Lord Sikka, has not presented the whole story on this—perhaps he did not know it; those who listened to his contribution ought to be aware that it is not the whole picture by any means.
My noble and learned friend Lord Garnier made a strong case for his new offence of failing to prevent an economic crime. He will know that there is considerable concern about the practical impacts of such an offence on the commercial world and that there was only a small majority in favour of a new offence when the Government consulted on it. I have no idea what is in the Economic Secretary’s letter, to which he referred, but I believe that the Government made a wise decision last year in referring the matter to the Law Commission for further study. We should await its findings. I understand that it is due to report by the end of this year; that is not a huge delay for something that could have significant consequences for a large part of the commercial world.
I support the idea behind Amendment 51 in the name of my noble friend Lord Holmes of Richmond, namely a review of the “know your customer” regulations. All noble Lords taking part in this Committee are PEPs—politically exposed persons—and I am sure that we have all bumped up against the ludicrous way in which some banks and other financial institutions act under the guise of their customer due diligence obligations. Looking again at this whole territory is definitely worth while.
Further, the UK’s money laundering rules were made in the EU. Now that we have left it, we have the opportunity to see whether the money laundering directives and regulations now embedded in our law are fit for purpose. The UK must remain committed to high standards in the fight against financial crime, but looking at the efficiency and effectiveness of the rules is entirely consistent with maintaining high standards.
The KYC rules are just one part of the money laundering rule set, and I would urge any review to go beyond KYC and look at the whole range of rules. For example, the SARs regime for suspicious activity reports is very burdensome for all involved, both the firms that make the reports and the regulators that receive them. In addition, there are restrictions on banks’ ability to communicate with each other about customers or potential customers, which increases costs and certainly reduces effectiveness. So, I urge my noble friend Lord Holmes to be even more ambitious in the review that he seeks.
Lastly, Amendment 96 in the name of the noble Baroness, Lady Kramer, seeks the establishment of a financial services whistleblower office. I wonder whether she has taken account of the changes made by the regulators to whistleblowing arrangements in regulated firms. Since early 2016, firms have had to have a nominated non-executive director as a whistleblowers champion—not responsible for whistleblowing but, effectively, for its oversight. Most firms align that specific required responsibility with the responsibilities of the audit committee chairman. In addition, the whistleblowing rules themselves were overhauled at the same time. I have not yet heard the noble Baroness speak to her amendment but I wonder whether the evidence base that she relied on as a background to her amendments pre-dates those new arrangements, and whether it would be wise to review how well the new arrangements are working in practice before creating yet another quango.
My Lords, I have put my name to Amendment 84, in the name of the noble Baroness, Lady Bowles, so I am afraid I am going to disappoint my noble friend Lady Noakes. We are normally on the same side but I am afraid that, on this issue, we are not. Perhaps I can turn away her wrath somewhat by saying that I much supported her views on Amendment 51A, which is a worthy amendment but does not go nearly far enough. We need to look at the whole regime; looking at one part of it is not sufficient, a point I was trying to make on an amendment we debated on the first day in Committee.
Like my noble and learned friend Lord Garnier, I am grateful to the noble Baroness, Lady Penn, and to the Economic Secretary to the Treasury for their briefing and correspondence. I apologise that the briefing was cut short for me because I had a power cut. My computer therefore went down, but I am grateful for the letter that was received earlier today.
The issue of failure to prevent has been pretty widely forked over in the speeches on this group, so I want to make two pretty quick points. The first flows from my membership of the Committee in your Lordships’ House which undertook the post-legislative scrutiny of the Bribery Act. We reported in March 2019 and our report found that the Act was:
“an excellent piece of legislation which creates offences which are clear and all-embracing.”
We went on to say that
“the new offence of corporate failure to prevent bribery is regarded as particularly effective, enabling those in a position to influence a company’s manner of conducting business to ensure that it is ethical, and to take steps to remedy matters where it is not.”
In our report, we noted, as did the noble Lord, Lord Rooker, that it was as long ago as May 2016 that the then Prime Minister, David Cameron, called for a consultation on a new offence of failure to prevent economic crime. We also noted that when Ministers gave evidence to the bribery committee on 4 December 2018, now over two years ago,
“Mr Argar said: ‘We intend to publish our response to it [the consultation] next year,’ and Ben Wallace MP added: ‘The Solicitor-General and I are pretty keen that we explore further the failure to prevent in broader economic crime … We raised it at the last inter-ministerial government meeting’”.
He added that John Penrose, the Government’s anticorruption champion,
“and I are keen to see this.”
The responses to the government consultation, although unpublished, and those suggested by Mr Glen to be inconclusive, are not as inconclusive as all that. The staff of our committee were able to find a lot of the submissions, which were available on the websites of the respondents, and none that we could find opposed the extension of the failure to prevent offence. Indeed, many supported it.
That takes me to my second point: the road to hell is paved with good intentions. The Government said in May 2019 that the call for evidence had closed in March 2017 and a response “will be issued shortly”. So, what are we waiting for? The Government have been standing on the edge of the pool for over two years. Each time they seem ready to jump in, inertia overcomes them and another round of consultation begins—now with the Law Commission, for which I have the highest regard. When my noble friend comes to reply, it would be helpful if she could let the Committee know what angles the Law Commission is supposed to focus on in this latest review and, in particular, what angles it will examine that have not been extensively looked over during the past four years.
My Lords, I have listened with great interest to some excellent contributions on this group of amendments. I refer to my own entry in the register of interests, although my comments stem from my experience over a lifetime of support for regulatory common sense as a witness of the perverse effects of well-intentioned but sometimes ill-judged regulation, sometimes added at the last minute to Bills such as this. I support proper standards and the use of whistleblowing, which is the subject of Amendments 96 and 97, in the names of the noble Baronesses, Lady Kramer and Lady Bowles. But my conclusion is that nearly all the harms articulated in the Committee today reflect a failure of enforcement by our regulators, and/or the failure of prosecuting authorities.
When I was heading the deregulation unit and converting it to the better regulation unit under Tony Blair and the noble Lord, Lord Clark of Windermere, I found again and again that rules were not properly understood or enforced. If there was an issue, there was an immediate call, backed by sectors of the press, for a new law. In fact, a much better, quicker and less economically damaging solution would have been better resourcing for the enforcement community—HSE, local authorities and our prosecutors—so they could hire top talent to match the legal teams of some offenders.
I will be interested in the Minister’s views on how the financial regulatory system stacks up, helped as it is now by the reforms to company law, for example, transparency on beneficial ownership, which I helped to promote as a Minister under the leadership of David Cameron. The recent improvement in Companies House verification work is overdue and most welcome. I suppose I should add that, as a citizen, I supported Companies House in taking the prosecution to which the noble Lord, Lord Eatwell, referred. Given my business career, I have to say that I was very upset suddenly to find myself, unwarned, at a private address, as a director, with attendant responsibilities, of a company I had never heard of, so I agree that checking and verification by Companies House needs to be done and properly enforced.
I should add that, as a citizen and a customer, I find the anti-money laundering rules ridiculously bureaucratic. If you buy a property or try to set up a new bank account, you are consumed in red tape, and that is a problem not only for PEPs like ourselves. It takes hours and lots of photocopying—if you are lucky enough to have a photocopier—and consumes cost and vast resource in the banking sector, which is the lifeblood of the economy—like it or not, I would say to some in this Committee. We need to focus enforcement much better if we are to tackle the issues raised by noble Lords today, including my noble friend Lady Noakes.
Finally, I have listened carefully to the rationale for Amendments 81 and 82. I am doubtful about adding a new corporate offence of a failure to prevent an economic criminal offence. As a serial non-executive director of small and larger companies, I cannot see how I would guarantee compliance with what is proposed—in the UK or overseas. Many more cautious folk will feel the same, so corporate Britain would find it harder to find challenging and careful directors for its companies. That is the opposite of what I thought we wanted and is likely to lead to yet further loss of financial services firms to overseas. I hope the Law Commission will address this angle, and I would be happy to talk to it if that is appropriate. I also hope that it will talk to my noble friend Lord Hodgson, who has taken a different view today. Preventing economic crime is the job of the regulators and their enforcement and prosecuting arms backed by suitable public and moral support. That will improve the confidence that my noble friend Lady Altmann rightly seeks.
My Lords, this is such a fascinating group of amendments. I think I have rarely seen a group that includes such powerful and important amendments one after the other ranging from the relatively narrow, such as Amendment 136, tabled by the right reverend Prelate the Bishop of St Albans, which would be a valuable extension of the senior managers certification regime, to the fundamental, in the form of the “failure to prevent” amendments in the names of the noble and learned Lord, Lord Garnier, and my noble friend Lady Bowles. Those amendments cover similar territory, and I notice that by splitting the amendments they have succeeded in garnering a wide range of signatures, thereby demonstrating that this is not a party-political issue but has extraordinary breadth across many political views in this House, so they have done that rather well.
I find these changes absolutely fundamental and, frankly, fail to understand why the Government resist them. I would argue that they are particularly important in the absence of a duty of care because of the way in which they change the locus of responsibility, if you like, or enhance it as it falls on a company in dealing with its customers and its products. I am cautious when an issue is sent to the Law Commission. I hold it in very high regard, but I notice that it is at its best when an issue is considered very narrow and limited. I am afraid that the Government may view “failure to prevent” as a narrow and limited concerned, whereas in fact it deals with the fundamental culture and sense of responsibility of major financial institutions for the behaviour of their staff and their various departments, and for the outcome for or impact on their customers.
I also support the various reviews sought by the noble Lords, Lord Tunnicliffe and Lord Eatwell. I smile at Amendment 50 in the name of the noble Lord, Lord Eatwell; he has had to craft it very carefully to make it fit into this Bill. Of course, he is absolutely right: we have a public register of beneficial ownership of companies in the UK, but it is not verified. I know how that rankles with the noble Lord, as we have discussed it in the past and I have a great deal of sympathy for his position. We rely on transparency to keep the register clean, but it is an imperfect system. Frankly, I would say to anybody that no one should rely fully on the information in the register; it is only a starting point. Making it verifiable would be a huge improvement. One of the things that bothers me the most is that many people who look at the register do not understand that it is unverified. That creates false impressions and leads people, particularly those who are less sophisticated, into making decisions that put them in financial danger.
I can see where the noble Lord, Lord Sikka, is going with Amendment 51A, but I am in the same camp as other noble Lords; I pick up the comments made by the noble Baroness, Lady Neville-Rolfe, which were also made by the noble Lord, Lord Eatwell, and others. We have absolutely inadequate resources for enforcement in the whole area of financial crime; that applies to the regulators and the Serious Fraud Office. Just a couple of weeks ago, I spoke to a former police commissioner and asked why, in a particular instance, he had not turned to the National Crime Agency’s Financial Intelligence Unit. The reply was, “It’s one man and a dog.” It is hideously underresourced. Also, our local police forces, which so often end up bearing the brunt of enforcement, are not resourced to deal with crime of this specialist nature and reach; neither are they sufficiently resourced when they come across companies with vast resources. The inequality of arms is exceedingly questionable.
On other days, we have spoken extensively of the HBOS Reading fraud—to the point where I think everyone is now familiar with it—but I wonder whether people realise that the case was pursued by Thames Valley Police only after the regulators, the Serious Fraud Office and two other police forces refused to pursue it. They did so not because they thought that there was insufficient evidence but because they did not have the resources to do it: it cost Thames Valley Police £7 million to prosecute. The fraud itself amounted to some £800 million, of which only £250 million was placed in evidence in court because that was sufficient to get the necessary convictions. It quickly became evident that this was a very serious fraud case. Many of us are concerned that similar fraud cases are simply ignored by police forces that cannot step up to the plate. I note that the entire financial penalty paid by HBOS was commuted for good behaviour so it was only £45 million, but every penny went to the Treasury and nothing went back into enforcement. We must tackle this issue, which will only get worse as we move into the era of cryptocurrencies and more digital financial transactions; for example, FATF identified crypto-thefts, hacks and frauds totalling $1.3 billion in the first five months of 2020.
I will focus most of my remarks on my amendment, which proposes to create an office of the financial services whistleblower. It is a probing amendment; noble Lords will understand why in a moment. Very many of the people who speak out to expose wrongdoing find that they become the target of retaliation and lose their livelihoods and careers. They are most often employees—that is not always true; they can be clients as well—and this is very much true in financial services.
When I was an MP and therefore a prescribed person, I assisted colleagues with two whistleblower cases. Both individuals had their lives shattered by retaliation from the financial institution that had misbehaved, despite their passing absolutely critical information to the financial regulators. Confidentiality was on paper only because, being good employees in one case and a good client in the other, they had raised the issues inside the organisation first. Their information also made it pretty obvious who had spoken out. I am no longer a prescribed person, but I work with the APPG for Whistleblowing and I have heard from numerous MPs about today’s cases, not cases that predate changes in rules, legislation and regulation. I have talked to regulators and civil society groups and they have all confirmed that there has been relatively little effective, real-world change.
If whistleblowers are employees they are typically fired—not for whistleblowing of course; there is always another coincidental reason—so they spend their savings in the long process of going to an employment tribunal, which can take years. Three years is nothing to go through an employment tribunal, given appeal processes. In the employment tribunal, the regulators to which they provided information refuse to give evidence in their support. My noble friend Lady Bowles raised this issue; it is a shocker and most people do not realise it. The regulator says that the tribunal is not about whistleblowing, so there is no reason for them to give evidence that the person happened coincidentally to be involved in these various cases. Frankly, I find it shocking that they do not believe that their responsibility to a whistleblower extends to that role.
Whistleblowers often face expert counsel paid by the employer. They know that if they lose the case they will have to pick up that legal counsel’s fees. That is a huge inequality of arms. In the end, most accept a modest settlement out of sheer fear and exhaustion. Whistleblowers desperately want wrongdoing stopped and put right. Where neither the regulator nor the law enforcement agency decides to act on their evidence they cannot turn to the public or the press because the settlement agreements invariably include draconian non-disclosure clauses.
The existing legislation, the Public Interest Disclosure Act 1998, was once ground-breaking. Now it is inadequate and out of date. Even the EU, which has never been a leader in this field, is about to overtake it with much more effective directives.
I am, among others, campaigning for an office of the whistleblower. One reason why I will not press the amendment is that we actually need an overarching office covering all sectors, public and private. Whistleblowers need one place to go to find out where they stand, get support and advice, source the financial means to fight retaliation and, if necessary, get appropriate compensation for their damaged careers—for most whistleblowers, whistleblowing is career ending. The amendment covers a wide range of needs. I also see an office as one that can work with regulators to design a much better system that means that whistleblowers come forward and are taken seriously, stopping bad behaviour in its tracks.
The US is extraordinarily effective in this area, and it aggressively protects and rewards whistleblowers because they both expose and deter abuse and crime. Since the Dodd-Frank Act—the key whistleblowing legislation—was passed in 2010 and set up their own Office of the Whistleblower inside the Securities and Exchange Commission, that commission has collected $2.7 billion in fines and penalties on wrongdoers in financial services whose conviction depended on whistleblowers. One federal prosecutor I spoke to just a couple of weeks ago described whistleblowers as “a citizens’ army” with a deterrent effect without which the regulators and law enforcement could not succeed. The United States takes this so seriously that the first conversation with a financial whistleblower or their legal representative is with an experienced investigator of at least five years standing versed in financial practice and law.
By contrast, when UK whistleblowers first contact the FCA—and I fully acknowledge that it has put in place systems it did not have years ago and has worked to make sure that banks put in place internal systems—calls are triaged by call centre staff with no knowledge of the industry or the law but who are trained in complaints handling. That basically says it all. To quote from the report on LCF by Dame Elizabeth Gloster,
“call-handlers on many occasions failed to refer allegations of fraud or irregularity regarding LCF’s non-regulated bond business to the Supervision Division.”
That is recent, and it is not just LCF—it is everything. We hear this consistently and constantly, and it is one of the reasons for many of the delays in action by the regulator on very major frauds that, around this table, we could list probably for the next 10 minutes.
I have one last comment. The senior managers and certification regime is meant to be the key tool used by the FCA to protect whistleblowers and ensure that they are taken seriously. The noble Baroness, Lady Bowles, cited the 2018 case of Jes Staley, the Barclays CEO, so I will not repeat what she said. But so that people understand the issue, the offence was hiring private investigators twice to hunt down the identity of an internal whistleblower. The industry expected the FCA to use the powers of the SMCR to declare Mr Staley “not fit and proper” to hold this position. I am sure that the Government will come back and say that the FCA levied its largest fine ever, which was in excess of £600,000—but take into consideration that Mr Staley’s compensation last year was £5.9 million.
At that moment, when the decision of a fine but no prohibition was announced—and anyone can look back at the way in which the FCA deals with these cases, as it keeps that on its website—the SMCR was fatally holed below the water line, not just around whistleblowers but around any other issue. Every CEO, who I think had been really quite frightened of the SMCR, came to know that they were too powerful to be seriously touched, and every whistleblower now knows that they are of only modest significance to the FCA.
Many MPs across all political parties are increasingly determined to get reform. The numbers who have joined the APPG are remarkable and quite a range of government Ministers, who cannot join formally but can talk informally with the APPG, are concerned. That is because of the experiences they have with constituents locally. The APPG led by the Conservative MP Mary Robinson is very active.
I really would like a commitment from the Minister to take up this issue, because if we are going to clean up this industry, we need that civilian army that the US has identified. We need a well-resourced enforcement system, but we also need that civilian army, and that could be delivered by the way that we structure the whole system available to whistleblowers.
My Lords, the Committee has heard about a range of issues relating to the importance of tackling economic crime. This is an area that the Government have taken significant action to address in recent years. As the noble Baroness, Lady Neville-Rolfe, noted, improved enforcement is crucial. That is why the Government have created a new National Economic Crime Centre, established the Office for Professional Body Anti-Money Laundering Supervision and, in 2019, launched the economic crime plan, which brings together government and the private sector to tackle this issue.
Amendment 49 would require the Treasury to commission a review of the penalties for market abuse offences. Market abuse undermines integrity and reduces public confidence in the financial system. That is why, in the Bill, the Government are increasing the maximum sentence for such crimes, to bring them into line with other types of economic crime offences. However, the Government recognise that, in other respects, the criminal market abuse regime has not been materially updated since these offences were introduced. That is why the Treasury and the FCA have committed to reviewing the criminal market abuse regime by July 2021, as part of the 2019-2022 economic crime plan. The review will consider whether updates are required to ensure that the UK’s regime for combating market abuse continues to work effectively in an evolving market.
Amendment 50 seeks to offer an additional defence to a bank that relies on information from a publicly accessible verified register of the beneficial ownership of companies. This Government are committed to ensuring that our anti-money laundering regulations support the identification of criminal and terrorist financing activity, without placing disproportionate burdens on the regulated sector. The UK was the first G20 nation to introduce a public beneficial ownership register. There are over 3.5 million companies registered in the UK, and over 5 million beneficial owners listed on the register at Companies House. In answer to the challenge from the noble Lord, Lord Eatwell, I want to be clear on the Government’s intention to introduce a package of reforms to limit the risk of misuse of companies, including by verifying the identity of people managing or controlling companies; providing the registrar with new powers to query and remove information; and investing in investigation and enforcement capabilities. This was set out in September 2020 in our response to a consultation on Companies House reform. We will legislate for this reform programme when parliamentary time allows. On the question of resources, the Chancellor made a further £20 million available to support these reforms in the spending review last year.
In answer to the question from the noble Lord, Lord Eatwell, the Government are bolstering the UK Financial Intelligence Unit with an uplift of over 70 additional staff, enabling more feedback to reporters and better analysis of SARs. However, the UK does not consolidate all resources and activity relating to suspicious activity reports in the FIU. The intelligence collected is also distributed to regional and local law enforcement.
Returning to Companies House, this information alone would neither represent sufficient customer due diligence, nor provide sufficient confidence that a transaction did not relate to the proceeds of crime. Central registers are not a “silver bullet”. Effective anti-money laundering regulation will still rely on the private sector playing its part. The regulated industry has significantly more exposure to, and interaction with, its clients and individual transactions than can be captured on a public register, and it is therefore well placed to identify and prevent suspicious activity by carrying out sufficient client due diligence. While I hope that I have reassured the noble Lord, Lord Eatwell, on his first two points—on the Government’s commitment to implement reforms to the Companies House register—I do not agree that we should remove the obligation on deposit-taking bodies to identify abuses by allowing them to simply rely on a beneficial ownership register. The Government cannot, therefore, accept the amendment.
I turn to Amendment 51. The “know your customer” or customer due diligence provisions are part of the money laundering regulations, which the Treasury is already required to review the effectiveness of at least every five years and to publish a report on its findings each time. This review will measure the impact of the existing regulations, assess the proportionality of duties and powers, the effectiveness of enforcement actions, and the interaction of the money laundering regulations with other pieces of legislation.
I also agree with my noble friend on the importance of financial inclusion. The Government are committed to working with a range of stakeholders to ensure that all consumers are able to access the financial services they need and that identification and verification are not a barrier to this, including by using innovations in technology to support this work.
Amendment 51A would replicate a power to amend the money laundering regulations 2017 under the Sanctions and Anti-Money Laundering Act 2018. That means that through statutory instrument the Treasury can, if it chooses, already amend the list of professional body supervisors, or PBSs, in Schedule 1 to the regulations. The remit of the UK’s anti-money laundering supervisory authorities set out in Regulation 7 can also be amended in this way.
On professional body supervision, the Treasury already works closely with the Office for Professional Body Anti-Money Laundering Supervision, known as OPBAS, to ensure high standards of effectiveness and consistency among PBSs. The noble Lords, Lord Rooker and Lord Sikka, spoke about transparency. The Government have introduced a requirement for the 22 professional body supervisors mentioned to publish annual reports on their AML supervision activity. This will support transparency and accountability and ensure consistency.
A report setting out the findings of the first review of the money laundering regulations to which I have referred will be published no later than 26 June 2022, with a call for evidence planned for this summer. That review will consider the effectiveness of the UK’s AML supervision and whether any reform is needed. It will also cover the OPBAS regulations.
Amendments 81, 82, 83 and 84 all propose to create a new criminal offence for corporate bodies or partnerships of facilitating, and of failing to prevent, economic crime or financial crime. First, I thank my noble and learned friend Lord Garnier for his focus on this important issue, echoed by other noble Lords who have signed the various amendments. The Government are committed to ensuring that under UK law corporate bodies and partnerships are properly held to account for criminal activity that takes place within them or is conducted by others on their behalf. The Government take these proposals seriously and are committed to considering whether there is a need to introduce such an offence. However, this is a complex area that requires careful consideration before acting. As noble Lords have noted, the principle of a “failure to prevent” offence is not opposed by the Government, as long as it is supported by a strong evidence base and addresses perceived gaps in the legal and regulatory framework. That is why in 2017 the Government issued a call for evidence on whether corporate liability law for economic crime needed to be reformed. Those findings were inconclusive and, subsequently, the Government commissioned the ongoing Law Commission review of this issue. That is expected to report by the end of this year.
I appreciate that this is a long-running issue, but before any broader, new “failure to prevent” or facilitation offence for economic crime is introduced, there needs to be strong evidence to support it. A new offence will also need to be designed rigorously with specific consideration given to how it sits alongside associated criminal and regulatory regimes and to the potential impact on business. Unlike with bribery and tax evasion, there are already extensive regimes, both criminal and regulatory, to hold both individuals and corporates to account for money laundering. Further, the “failure to prevent” offences introduced in respect of bribery and facilitation of tax evasion are both formulated to tackle very specific and precise circumstances. Wider economic crime offences present more complications. Fraud, for example, covers a much wider range of activity and business areas. The complexity of a broader economic crime offence is why the Government want to await the conclusions of the Law Commission’s review.
I also note briefly that the proposed new offences would only apply to activity undertaken,
“in the course of using or providing financial services”,
in keeping with the scope of the Bill. However, the 2017 call for evidence did not provide any evidence to suggest that financial services businesses should be specifically targeted with a new offence. Therefore, I believe it is best that this issue continues to be considered within the broader context, rather than focusing on financial services firms.
I turn to Amendments 96 and 97 on protections and services for whistleblowers. Whistleblowers play a valuable role in society by bringing to light wrongdoing that could otherwise go unchallenged. The FCA and PRA put in place new rules in 2015 to support whistleblowers, and I know that the noble Baroness, Lady Kramer, acknowledged this. Moreover, the FCA has accepted all of Dame Elizabeth Gloster’s recommendations and is committed to taking action to implement them. It will accelerate its ongoing reform programme and report regularly on progress. If the FCA or the PRA find evidence that a firm has acted to the detriment of a whistleblower, they will investigate and take appropriate action against the firm and accountable senior employees.
Amendment 96 would duplicate the role of FCA and the PRA as prescribed persons under the Public Interest Disclosure Act 1998. Creating a further body would potentially create confusion for whistleblowers. There are already legal protections, most significantly those under the Employment Rights Act 1996. To address the point made by the noble Baroness, Lady Bowles, about the giving of evidence, while it is the case that the FCA and PRA do not normally intervene in employment-related issues, they can be called upon to give evidence at employment tribunals. However, the regulators need to avoid giving any evidence that would breach confidentiality requirements, as to do so could constitute a criminal offence. I am therefore not convinced that an amendment of this nature would materially improve protections for whistleblowers.
On Amendment 136, I say to the right reverend Prelate that, while the senior managers and certification regime does not apply to individuals within appointed representatives, the FCA instead applies the approved persons’ regime. Under this regime, the person must meet the FCA’s requirements of its “fit and proper” test, follow its principles and report anything that could affect their ongoing suitability and the authorised firm. However, the FCA is looking at this issue further. In September 2020, the FCA issued a call for input in the consumer investment market, where it sought views on how the appointed representatives’ regime was working in practice, and is currently analysing responses.
The Government will continue to work with the FCA on developing a better understanding of the effectiveness of the current appointed representatives’ regime, and any future reforms that may be needed. If the evidence demonstrates that reforms are required, the Government will consult on specific proposals and bring forward legislation at a future date. I also say to the right reverend Prelate that I or my ministerial colleagues would be happy to engage with him on the other issue he mentioned, which did not make it to this Committee stage debate. I will happily write to the noble Baroness, Lady Bennett, to address her specific question.
I hope that this response has provided noble Lords with sufficient reassurance not only on the significant action taken by the Government on the issues raised, but on the future work underway to take these further. I therefore hope that the noble Lord, Lord Eatwell, feels able to withdraw his amendment and that other noble Lords do not move theirs.
My Lords, I have received a request to speak after the Minister from the noble Lord, Lord Sikka, and the noble Baroness, Lady Bowles of Berkhamsted. I call the noble Lord, Lord Sikka.
The group of amendments which we just discussed focused primarily on economic crime. Matters such as tax avoidance and tax evasion have also been mentioned, which are often the domain of the accounting law firms, banks and others. The noble Baroness, Lady Noakes, is absolutely right in that accountancy trade associations, such as the Institute of Chartered Accountants, also carry out a variety of other regulatory functions; but the question is how well such functions are actually carried out. There have been a number of court cases brought, by HMRC, where the judges have held that the tax avoidance schemes were unlawful. I hope the Minister can help us by telling us whether, after those court judgments, even one big accountancy firm has been investigated, fined or disciplined by the Institute of Chartered Accountants or any other accountancy trade association. Even one example from the past 10, 20, 30, 40, 50 or 100 years will do.
My Lords, I would be happy to write to the noble Lord on his question. The debate focused on the role of these organisations in respect of their anti-money laundering supervisory functions. As I said to the noble Lord in my response, a review of the AML regulations will be published no later than 26 June 2022, with a call for evidence this summer. If he feels the need to input to that review, that would be very welcome.
I want only to point out to the Minister that I believe she said in her reply that the “failure to prevent” offences were targeting financial services firms. That is not the case. They were targeting use of financial services. The difference is quite important because it is much more generic, and I would not like anybody to think that I was targeting only financial services firms. The point is that it is quite difficult to do a lot of the things that are economic fraud without touching financial services. That is why it falls so full-square within what the Treasury is responsible for and why, as I said previously, it is particularly relevant to the Bill. I know the Minister has to have a “Hands off, do nothing and do not amend this Bill” attitude, but I hope that this issue will be taken to heart and that reasons to do something, rather than reasons not to, will be looked at. I was generic about the use of financial services, not financial services firms.
My Lords, I happily acknowledge that point. The point I was trying to make is that even with that slightly broader definition of the use of financial services, a “failure to prevent” offence for broader economic crime is one that people would want to apply in a broader context. I appreciate that the scope of the Bill defines how amendments may be written, and that takes me back to one of the reasons that my noble and learned friend Lord Garnier predicted I might give for resisting this amendment: that this is not the right Bill for it.
My Lords, this debate has evidenced considerable concern from all sides of the Grand Committee at the level of financial crime and the apparent inability to tackle it in this country in a consistent manner. I am afraid that the Minister’s reply did not provide any reassurance. Indeed, there seemed to be an enormous amount of long grass in evidence into which various reviews and considerations were being kicked.
Before commenting on the Minister’s reply to my amendment, I shall comment on the amendment by the noble Lord, Lord Holmes, on KYC. I entirely sympathise with his point about a modernised means of identification, but I am afraid he will come up against what seems to be a most peculiar British national aversion to any comprehensive means of identification. Therefore in KYC we rely on documents such as utility bills that were never designed for this purpose. The debate over a vaccine passport is running into the same national aversion. However, I wish him well because he is on the right track in what he is attempting to do.
I was also enormously impressed by the amendments in the name of and the speech made by the noble and learned Lord, Lord Garnier. I cannot understand why the notion of failure to prevent, which he described so clearly that even a non-lawyer such as myself could understand it, can apply to bribery and tax evasion but not to other financial crimes. The Minister did not really address that lacuna in her reply.
Turning to my two amendments, first, the UK’s approach to measures against financial crime is underresourced, scatter-gun and generally ill directed. The evidence is clear in the extraordinarily low number of prosecutions. I therefore feel that there is an urgent need for a major reconsideration of this matter. I hope that the review referred to by the Minister, to be conducted by Her Majesty’s Treasury and the FCA, will produce something concrete and effective—for a change, I must say.
On beneficial ownership, I was amused by the point made by the Minister that, because of the peculiar structure of my amendment, I was somehow letting the private sector off the hook. That was not my intention, of course; it was about the necessity of getting the argument in the Bill. However, I was really disappointed to hear her repeat the discredited support for Britain’s so-called wonderful public beneficial ownership open register. This public register is inaccurate, misleading and shelters criminals, and I am surprised that she is so enthusiastic in her support for it. I hope that the committee that scrutinises financial matters, which we discussed earlier in this Committee, will be able to keep an eye on developments in the prosecution of financial crime and the provision of a proper, verified beneficial ownership register. I hope that it will push these matters forward and not let them disappear into further reviews.
In the meantime, I beg leave to withdraw Amendment 49.
Amendment 49 withdrawn.
Clause 31: Money laundering offences: electronic money institutions, payment institutions and deposit-taking bodies
Amendment 50 not moved.
Clause 31 agreed.
Clause 32 agreed.
Schedule 12 agreed.
Clause 33 agreed.
Amendments 51 and 51A not moved.
Clause 34: Debt respite scheme
52: Clause 34, page 40, line 15, leave out “and (4)” and insert “, (4) and (4A)”
Member’s explanatory statement
This amendment, and the amendment to page 40, line 32 in the name of Baroness Coussins, would require that the Statutory Debt Repayment Plan element of the debt respite scheme would have to come into force before 1 May 2024.
My Lords, I am very glad to open the debate on this group, although I fear that we may be interrupted at least twice if votes are called in the Chamber; I see that the Minister is on his feet there now.
I declare my interest as an ambassador and former president of the Money Advice Trust, the charity that runs National Debtline and Business Debtline. In moving Amendment 52, I will also speak to Amendment 67 in my name, to which the noble Baronesses, Lady Morgan of Cotes and Lady Kramer, and the noble Lord, Lord Rooker, have added their names. I warmly welcome their support.
Before dealing with my own amendments, though, I want to say a brief word about the probing Amendment 54 in this group, in the name of the noble Lord, Lord Stevenson, who has done so much to secure the introduction of both the Breathing Space scheme and Statutory Debt Repayment Plans. I hope the Minister will be able to provide clarity today on universal credit advances and third-party deductions, and I am sure the noble Lord, Lord Stevenson, will set out further details on those issues. At Second Reading, I also mentioned the problem of lead generator firms or imposter websites, so I also welcome Amendment 111 in this group, in the name of the noble Lord, Lord Holmes of Richmond, and others. I look forward to hearing the Minister’s response on what action the Government intend to take on this issue.
Turning to my own amendments, although the second of the two it is Amendment 67 which conveys their intention: to include in the Bill an end date of 1 May 2024 for the implementation of the Statutory Debt Repayment Plans, or SDRPs. Amendment 52 just tidies up the numbering of the clauses. I am most grateful to the Minister and to Treasury officials for meeting me to discuss my amendments and for their encouraging, if not yet definitive, response. I hope the debate today will move us even further forward.
Clause 34 is an important part of the Bill, particularly in the context of the worrying impact the coronavirus outbreak has had on household finances in the UK. The clause gives the Government the power to introduce SDRPs, and they have rightly been praised for their commitment to bring this forward as part of the Bill. I want briefly to recap the case for why SDRPs are so important, as this goes to the heart of why it is also important that we can have categorical confidence in a timetable for their implementation.
SDRPs will make a significant difference to people in problem debt—a group that, sadly, is expected to increase in number because of the pandemic. Recent research by the Financial Conduct Authority found that during the outbreak, around 3.8 million people had missed payments on their essential household bills or credit commitments in three or more of the previous six months. The same research found that 13.2 million people in the UK expect to struggle to make ends meet in the next six months, while one in six adults—equivalent to almost 9 million people—are worried that they will not be able to keep up with their household bills. SDRPs will ensure that those who are repaying their debts in full, but who need to do so in an affordable way over a manageable period, will receive binding, legal protection from creditor action. They will also be protected from having additional interest, fees and charges added to their debts.
Crucially, creditors from both the public and private sectors will be covered by these plans, which, unlike the current voluntary debt management plans, will enable people to deal with their debts holistically. This will prevent one of the problems we often see now—the actions of just one creditor continuing to pursue people for more than they can afford perhaps completely disrupting their attempts to deal with other debts to other creditors. SDRPs are good news for creditors, so they are a win-win innovation. Creditors will recover higher repayments overall. Indeed, the impact assessment for the Bill estimates gross annual benefits to creditors of over £2.8 billion, so it is hard to argue with the view that such a good idea should be implemented as soon as possible.
I know the Minister is sympathetic in principle to this view, and I am grateful to the many noble Lords across the House who supported me at Second Reading in calling for a firm, clear timetable. It is understood and appreciated, of course, that the Treasury has a significant programme of work on its hands, but it is vital that SDRPs remain a priority. My amendment would ensure clarity on the Treasury’s implementation timetable by stipulating that SDRPs must come into force by 1 May 2024 at the latest. This, of course, is meant to be an end date, not a target; it would obviously be more than welcome if the plans could be brought into effect before May 2024.
However, I have no wish to tie the Government to an unreasonable or impractical timetable. I acknowledge that introducing a brand new debt solution requires time to develop, to pass regulations, and to set up the required systems and infrastructure. So I believe, especially following my discussions with the Minister and officials, that an end date of the beginning of May 2024 is both realistic and achievable, and indeed perfectly in line with what the Government themselves want to do. A commitment in the Bill to a firm timetable would send a clear signal to people worried about their finances as a result of the current crisis; it would signal that the Government were serious about supporting people to repay their debts affordably and give them hope that there was a way out of problem debt.
I want to make a final argument in support of my amendment. As things stand, we expect the next general election to be held on 2 May 2024. Since joining your Lordships’ House some 14 years ago, I have witnessed a few times the playing out of the so-called wash-up procedure in the run-up to a general election, during which a certain amount of political horse-trading goes on to agree which bits of policy in the pipeline will be sacrificed to clear the parliamentary decks before the election recess. I do not want this to happen to statutory debt repayment plans. If the Minister undertook to persuade the Government to accept my amendments, this unintended pitfall would be avoided. I hope that he will give serious consideration to the whole case that I have made. I beg to move.
My Lords, it is a pleasure to take part in the debate on this second group of amendments. I declare my interests as set out in the register. It is also more than a pleasure to follow the noble Baroness, Lady Coussins, and the elegant way in which she introduced the amendments. I would certainly have added my name to her Amendment 67 had I had any ink left in my pen. I can only express regret that my name is not on it, as it elegantly and excellently expresses her intention, as she has done on her feet today.
In many ways, this is the most important group of amendments that we are considering in Committee. It takes me back to 2017, when we debated the Financial Guidance and Claims Bill, as it was then, and our discussions about duty of care and financial inclusion. It all rings true in these amendments and in our earlier discussions in Committee on financial inclusion objectives, not least for the Financial Conduct Authority.
I am grateful to the Money Advice Trust, Macmillan and StepChange not just for their briefing, advice and commentary for these amendments but for the work that they and all the organisations involved in the debt space do day in, day out—often unsung—dealing with people who find themselves in some of the starkest situations. Those organisations step in, and they deserve our thanks, praise and recognition.
I shall cover Amendments 53, 68, 69 and 111 in my name. I shall also touch briefly on Amendments 54 and 70 in the name of my friend, the noble Lord, Lord Stevenson, but I shall be mindful not to eat his tea. I feel somewhat nervous speaking before him, with all the expertise he has in this area and in view of his excellent chairmanship of StepChange. This Committee and our nation owe him a tremendous debt for the work that he has done in the area of debt.
Amendment 53 is relatively straightforward. It focuses on the provision of debt advice for those who would fall within the scheme. It hints at the wider point of financial education, not just in schools, as we have discussed in the past, but broadly, throughout life. It was not possible to craft an amendment to the Bill on financial education the way I would have intended. However, I believe that Amendment 53 speaks to that specific intention while having general applicability, broader than just those within the scheme.
Amendment 54, in the name of my friend the noble Lord, Lord Stevenson, is an excellent probing amendment, and I shall leave him to walk us through it. Amendment 68 has elements of Amendment 67, in the name of the noble Baroness, Lady Coussins. It sets out the provisions of the SD scheme and a timetable for its implementation. I am not entirely sure why I opted for December 2024 as the end date for when people would have to have been taken up into the scheme. I may have had the view that the Johnson Administration would go the full five-year distance. On balance, I am probably minded to go with the noble Baroness, Lady Coussins. May is probably a better date; it is certainly reasonable and achievable and gives the right amount of space, with the right amount of road, to enable this scheme to get up and running.
Amendment 69 seeks a consultation on how funding for advice will operate under the scheme and is relatively straightforward. Amendment 70 is, without question, one of the key amendments in this group. It was handsomely set out and I will not eat my friend’s lunch in doing so again. By setting out particular groups, not least SMEs, those with protected characteristics and charities, the noble Lord has done an excellent job in focusing on the key groups and on how such a review should be structured.
Amendment 111, my final one in this group, is concerned with so-called lead generators. In many ways, it goes to the essence of the human condition: the ebb and flow; the give and the take. What we witness with lead generators is, all too often, those taking from those who have the least. The aim of the amendment is straightforward: to end the misery and mental stress that the practice of lead generation, as currently conducted, causes to tens of thousands across the UK. What are lead generators? In essence, they use online tools to crawl the online world in search of those who have entered that environment to try and find solutions to their current debt difficulties. They then serve up the individuals they have captured, if you will, to organisations which seek to “advise” and “help” them. This area is riddled with misleading statements, misrepresentation—
The Committee will now adjourn for five minutes.
Sitting suspended for a Division in the House.
My Lords, before I invite the noble Lord, Lord Holmes, to complete his comments, I point out that I completely omitted to put the question when the noble Baroness, Lady Coussins, moved her amendment. For clarity, the question before the Committee is that Amendment 52 be agreed to. I call the noble Lord, Lord Holmes of Richmond.
As I was saying, lead generators are involved in misleading and misrepresentation by holding themselves out as organisations such as the Money Advice Trust or StepChange, or representing themselves as government to pull in for financial gain those who sought help for their debt difficulties. It is a pernicious practice, preying on those who are, without doubt, extremely vulnerable as a result of debt. It is unfortunate that the arena for their taking is the world wide web—one of the greatest gifts to humanity from one of the greatest of great Britons, Tim Berners-Lee. It is such a tragedy that his world is populated by these tawdry takers.
Amendment 111 would amend the FSMA to bring lead generators into the world of regulation to end this pernicious practice and to address the current asymmetry in FCA regulation: if you are introducing creditors that is a regulated activity; if you are introducing a debt advice service or the like, that is currently unregulated. The problem is large: StepChange and the Money Advice Trust estimate that at least 10% of those in need who seek their help and that of other debt advice services are caught up in and misdirected by such lead generating practice. That is an extraordinarily high figure.
We often see the world in a grain of sand when we consider personal testimony. One man said: “I am caught up in this world of these people. I am called, if not once, five times a day. Fortunately, I’ve managed to sort out my debt problems, but this harassment from these organisations is almost as bad as the debt itself. It’s having a detrimental effect on my life; it’s having a detrimental effect on my mental well-being.” That is the outcome of this mendacious practice, of this fakery and falsehood, from these tricksters and takers.
When my noble friend the Minister considers Amendment 111, would he agree that when individuals look for support in their hour of need as a result of a debt situation, they should find help, not harm? I am delighted that the amendment has the number 111; it is a single Nelson of an amendment. It is a single amendment with a single intention: for it to pass to make one single, simple change that will help hundreds of thousands. Will my noble friend the Minister channel his inner Nelson and give Amendment 111 its victory?
My Lords, I declare my interest as a former chair of StepChange Debt Charity. I thank the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, for their kind words about the work we have done with StepChange and all the other groups involved in supporting the repayment of debt and the management of unmanageable debt. It has been a pleasure to work with them and I have listened to their words very carefully, but it has also been wonderful, over the years I have been working on this issue in your Lordships’ House, to see the number of people who have become interested in it and who are prepared to join in and support it grow. It is now a very solid group with very firm views about how things should move forward, as we just heard.
I was very struck by what the noble Lord, Lord Holmes, said about the way people prey on those who have problems with debt. When I was working at StepChange we decided to change the name from the rather uncomfortable Foundation for Credit Counselling, which no one ever used. It was not a foundation, we did not deal with credit, and we did not counsel. It was a problem to get across what we did do, but we decided to be bold, as one is when coming to a new organisation and thinking about how you might change it. We decided to go for a name that took us away from any descriptive elements, and came up with StepChange.
One thing that we did not expect, which plays back to what the noble Lord, Lord Holmes, said, was that within 24 hours of our name being announced to the world there were between 15 and 20 groups preying on the same group of people we were trying to help, in exactly the way that the noble Lord described: they had changed their names to variations on StepChange. They also changed their colour coding, the whole look of their websites and the whole way that they approached potential customers. It was a wonderful example of the difficult area in which we operated. Here we were, trying to help people who were desperate to repay the debt that they had got themselves into. They were, by and large, decent, ordinary people for whom something had gone wrong with their lives and as a result they were spiralling into unmanageable debt. Yet here were these other companies trying to make money out of them, as the noble Lord explained. It was just awful, and to do so in a way that showed that they were watching how we operated in the market and were prepared to copy our techniques to get people to pay them money which they could not afford in order to get out of debt, was an extraordinary basis.
That leads into the amendments in this group, which are largely about trying to work with the Government in their good and well-thought-through plans, which are slowly coming to fruition. Perhaps they could go a little faster, but that is part of this discussion. My principal point is that I want us to support what the Government are doing because they are on the right track. We would like to do anything that we can to help them.
I have two amendments in this group and would have signed others, but I did not need to because they have a lot of support in other areas. Amendment 54 probes the nature and content of the regulations that will establish the statutory debt management scheme, which is complementary to and foreshadowed by the debt respite scheme mentioned by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes of Richmond. Amendment 70 calls for a formal review of the debt respite and statutory debt management schemes within a two-year period after Royal Assent. It looks very straightforward on the surface but when the Minister responds I am sure that he will realise where the amendment is trying to take him. It has the same impact as the points made by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes, which is that we are a bit worried about the time that it has taken to get this scheme going. The idea was—
My Lords, as there is a Division in the Chamber, the Committee will adjourn for five minutes.
Sitting suspended for a Division in the House.
My Lords, the Committee will now resume.
My Lords, I will move on to the first of my amendments: Amendment 54. Clause 34 as drafted, is quite short, and it is hard to reconcile it with what I understand to be the Government’s ambition. I would be grateful if, when he comes to respond, the Minister could confirm whether plans remain to replicate the Scottish statutory debt management plan, which has worked well for debtors and creditors. The reason for Clause 34, at its heart, is to take the necessary powers to ensure both that creditors participate in the scheme and that they contribute towards the funding so that the full range of advice and support for the SDMP is available.
The experience of the scheme in Scotland is that the Government are on the right track. Recent discussions with Ministers have been very reassuring, and I thank them for their time. However, it would be helpful if we had a little more detail put on the record; whether he is able to do this in response to the points I am about to make, or whether he would like to write to me, I should be grateful to hear further from the Minister in relation to some of my points.
One point is that the breathing space regulations—SI 2020/1311—define a debt advisor as having FCA permission for debt counselling or a local authority. That is quite a wide group: when he comes to respond, can he make that a little bit narrower? Presumably, this is a local authority which is currently offering a full debt advice system. Of course, that has been badly affected by cuts in recent years, so I hope that more detail will be provided on that. Can he confirm that this definition used in relation to debt advice will also be available for the debt-advice component of the statutory debt-management plan?
Secondly, the Minister will also be aware of the concern that debt advice should continue to be available for free. There is considerable evidence that many people do not get access to the debt advice that they need. The pandemic is obviously a worry that may yet crystalise into concern about, interest in, and need for debt advice. We have not seen the numbers increase very significantly recently, but that is because the Government have been effective in getting the funding necessary to maintain people’s continuing existence at the moment. However, when those schemes wind up—and it will be some time before they do, but they will wind up—then there will, of course, be some concern about the amount of debt advice available and whether it will be fundable on a continuing and sustainable basis.
In this context, my third point is that the Government have said that they wish to restrict the funding of the SDRP providers to 9% of the effective debts. This sounds like a reasonable proportion, and there might be a lot of support for it, but it exposes a gap in the current arrangements, which are based on a fair share plan of 13%, so it is a reduction of about 4%, including the costs that are currently absorbed within the structure being made explicit and being met by the overall system. This is a detailed point and I am sure that the Minister will be pleased to hear that I do not expect a very detailed answer at this point, but it would be helpful if more detail could be provided in a letter. We need to know the basis on which the direct cost of the statutory debt management scheme will be operated and that there will be funding available for debt advice, which is the other part of the equation that needs to be funded.
My final point on this list is the question of timing, which has already been addressed by the noble Baroness, Lady Coussins, and the noble Lord, Lord Holmes. I do not think it is sensible to set an artificial time limit for the Government on this. It should come through as and when the Government can get it right and get it out, but I hope that my Amendment 70, which is couched in the form of an amendment asking for a report, is a sufficient stick to suggest that a little more effort on this would be very welcome all round.
We have already touched on my next point in relation to those who seek to benefit from people who are suffering from unmanageable debt by offering them commercial services. A number of companies offer this, and a number of other amendments deal with this, but it is important to establish that the scheme that the Government are supporting is entirely on a non-profit basis. Clearly, if there were to be profit-seeking FCA-authorised debt advice providers also included in this group, it could mean additional costs for the scheme or else a reduced service for those participating. I cannot believe that it would be in the public interest to have a situation where people were obtaining commercial returns from what should be a free service. I accept that the original policy statement by the Government said that debt advice providers would not be able to charge fees in addition to the FairShare scheme, but I should be grateful if, when he comes to respond, the Minister can confirm that that will be set out properly in the regulations.
I have two final points. Can the Minister confirm that the reference to the Crown in Clause 34(4) means that all public body debts will be included in the scope of the statutory debt management plans? It is important to get that confirmation. It is really good that the Government have accepted that Crown debts will be included but, obviously, a significant number of debts are also owed to public services, which are not officially within the Crown, unless I am unaware of a definitional point here; that particularly applies to local authorities.
In that respect, it is also important that we can get confirmation that while individuals are in the debt respite scheme or the SDMP, they will be protected from enforcement action—particularly bailiff action. This has been one of the most welcome measures in the pandemic moratorium affecting those people in unmanageable debt. The suspension has released a great deal of concern that people had about this. It seems unlikely that the Government would want to see a scheme that, on the one hand, protects those who are attempting to repay their debts by obtaining breathing space and then entering a plan to do so but, at the same time, does not seek to restrict the possible bailiff action that would have such a deleterious effect on them.
We will come back to this issue in a later group because there is now an amendment around it—that may well be a better time to discuss it—but I would be interested to have an initial response from the Minister when he comes to respond.
My Lords, my amendments in this group are all a result of my chairmanship of the Enforcement Law Review Group. They reflect the concerns of members of that group—it has representatives from all sides of the debt management business, from creditors to debtors and others—about the breathing space regulations. I would be quite content if my noble friend wrote to me or discussed these matters afterwards, but I am grateful for the opportunity that the Bill affords to pick them up before the arrangements themselves go live.
Amendment 56 asks whether the 60 days of the breathing space moratorium can be extended. There is concern, particularly from the debt management side, that the whole business of processing a benefit claim can run beyond 60 days and make it necessary that the period should be longer. They want to see either that there is flexibility or that there will be some way of managing situations where a longer period is needed.
Similarly, Amendment 57 looks at the need to report in the middle of the 60 days and, if there has been no change, to ask whether the requirement of the report might be omitted.
Amendment 58 looks at situations where the debts owed include those where it would be really difficult to inform the creditor of what was going on, in terms of obtaining a breathing space, because the creditor is in a position to upset the debtor’s life substantially. Examples might be having children in a nursery, a car in to be repaired or a landlord who is in a position to evict the debtor from their house. It would allow debt management agencies the flexibility to manage a debtor’s life in a way, at the same time as they are helping them with their debts, and not push them into trouble because they have involved more commercial creditors in a breathing space scheme.
There are arrangements in the breathing space that put obligations on creditors. It is not clear that anything bad happens to them if they do not comply with them. It would seem worth while having a system that allowed, at least in principle, creditors who misbehave to be sanctioned so that we get a good level of compliance from creditors. All in all, the breathing space scheme is thoroughly well supported but it will have a lot of practical issues to deal with. I am sure that it will require a review after a year or so. The history of enforcement law is that, after each initiative—after each new thing happens—the Government say, “We will keep this regularly under review”, and then they do not. I would like to see an obligation in the Bill, under Amendment 60, to ensure that what happens under the breathing space scheme and subsequently under the additional arrangements in the Bill is reviewed regularly so that the system can be continuously improved.
Amendment 61 looks at the requirements on a creditor to comply with the regulations within a very short timescale where, in practice, if the situation is complicated or the debts are now with a subsequent debt purchaser, it may take just a little longer. I would very much like to be comforted that, in those situations, the management of the breathing space system will take a sensible and practical view of that situation.
I call the next speaker, the noble Lord, Lord Rooker.
Please continue—sorry. It was a pregnant pause.
Amendment 62 looks at joint debt situations, for instance between a wealthy husband and an impoverished wife where it is the wife who has the breathing space moratorium. Under those circumstances, it is not obvious that the wealthy husband should have the benefit. The amendment therefore asks whether, under some circumstances, the moratorium should not apply to all parties to a debt.
Amendments 63 and 64 are really just opportunities to ask the Government whether this scheme is ready to go. A lot of pressure has been placed on the Insolvency Service and the courts in the course of Covid. Are we actually in a position to launch a working system? If not, should there not be some arrangement to allow delay to ensure that, when the launch comes, it is successful?
Amendment 65 looks at situations where a debtor gets the benefit of a breathing space but then just does nothing and does not engage with the breathing space process in any way. It asks: should there not, under those circumstances, be some incentive—something that the debtor loses by not engaging with the process?
Amendment 66 looks at the situation of a creditor that has taken its debt to the point of commencing legal action and then faces a breathing space process. That is fine, but should not the position that the creditor has got into be finalised so that things can be picked up again afterwards if they need to be, rather than having to be started again at considerable expense to the creditor? Should not the system recognise—[Inaudible.]
I appreciate that these are complicated and detailed amendments. As I said, I would entirely accept written correspondence, and I shall be grateful for anything the Minister says today. However, they reflect an industry that is looking to make a success of both sides of the breathing space initiative but is concerned that some details are not provided for in the regulations as they exist at the moment.
Now I have finished.
Thank you for the clarification. I call the next speaker, the noble Lord, Lord Rooker.
My Lords, I counted at least three occasions when I thought that the noble Lord, Lord Lucas, had finished his incredibly thoughtful speech as he moved from one group to another. That is not a criticism by any stretch of the imagination, by the way. I will be extremely brief.
My name is on only a couple of amendments: Amendments 52 and 67. I have nothing new to say from what I said at Second Reading. I simply wanted to get my name on the amendments to show the widespread support for the issue raised by the noble Baroness, Lady Coussins. The key amendment in her name—Amendment 67—might be thought to be far too reasonable. If I were the Minister—and I have been in that position—I would accept it, I must say. I would go back and tell the boss that I had to accept it because it would have been made worse on Report—it may well do with another amendment with another date on it—and it would save everybody a lot of time. I did that more than once as a Minister, and it usually turned out okay.
I am very grateful for the work of the Money Advice Trust. This amendment affects what could be millions of people. We are talking about some really serious problems. I was taken by the examples given earlier in the debate on this group by the noble Lord, Lord Holmes of Richmond. I fully support the amendment and cannot see why it cannot be accepted now just to tidy everything up so that we do not have to spend more time on it on Report. I am not saying that it is not important but it is likely that, on Report, Ministers will be faced with a different date. I would accept this amendment and run with it. Everyone will be grateful if the Minister does so.
Finally, the Government deserve great thanks for Clause 34. I want to give credit where it is due. I have finished.
My Lords, it is a pleasure to speak in this debate and follow the noble Lord, Lord Rooker. Like him, I will speak to Amendments 52 and 67, as well as to Amendment 54. I have added my name to all of them. I will also speak in support of Amendment 111. I declare my interest as a pro bono adviser to the board of StepChange, the debt advice charity, which has already been mentioned—quite deservedly—in the course of the debate. I am sorry that I could not speak at Second Reading.
We have heard some excellent speeches. I do not want to detain your Lordships for too long. As we have already heard, even before the pandemic, tens of thousands of households faced personal debt situations requiring debt advice. A recent report by Pro Bono Economics said that, because of the pandemic, an extra 480,000 households are likely to be pushed into debt. In the worst-case scenario, that would mean the overall number would rise to 1.5 million by the middle of this year. Of course, the cost to society of problem debt is likely to exceed £1 billion this year through things such as extra mental health support and housing provision.
Like the noble Lords, Lord Rooker and Lord Stevenson, I also recognise the Government’s work to address this issue through introducing the Breathing Space scheme and the forthcoming Statutory Debt Repayment Plan. I added my name to Amendments 52 and 67. I pay tribute to the way they were introduced by the noble Baroness, Lady Coussins, and I thank the Minister for the conversation we have had about them. Like other noble Lords, I think that we need a firm timetable for the introduction of the SDRP so that debt agencies and advisers can plan for that introduction. I understand that 1 May 2024 basically fits in with the Treasury’s timetable, so I hope my noble friend can take the Committee’s advice. I wait to hear what he will say about whether that timetable can be accepted.
The noble Lord, Lord Stephenson, introduced his Amendment 54, which he said is a probing amendment. It asks some good questions about the new Statutory Debt Repayment Plan. I will listen to what the Minister has to say in response. I echo in particular the points he made about the fair share funding, which will obviously be very important for organisations such as StepChange. There is a concern that, without the clarifications the noble Lord has been seeking, the SDRP statutory fair share will not be successful in increasing access to free debt advice and might actually reduce access for clients who are not suitable for an SDRP. Clarification on that funding model would be extremely welcome.
The other subsection of the amendment that I particularly want to pick up relates to bailiffs. There is currently a confusing landscape in this third national lockdown where bailiffs are permitted to appear on doorsteps but not, for example, enter premises. However, they can seize goods such as cars sitting on the highway. I know that Amendment 36F, which has recently been tabled, is in a different group, but having bailiffs clearly bound by the terms of the SDRP and, as suggested in that amendment, by a regulator would help to ensure compliance with the SDRP scheme. I hope the Minister will confirm that bailiffs will absolutely be bound by the terms of the Statutory Debt Repayment Scheme that has been agreed.
I also offer my support to my noble friend Lord Holmes’s Amendment 111, which he so graciously introduced. It seeks government action to regulate lead generators for debt advice and debt solutions. We have already heard how easy it is for people, who are often extremely vulnerable at the point that they seek debt advice, to think that they are contacting StepChange or National Debtline and instead find that they are speaking to other people who then, as my noble friend said, harass them thereafter. Even when they have got themselves into a better position, they are harassed for continued work and debt advice. I also know that StepChange has to spend a significant amount of time monitoring and reporting misleading advertisements and, obviously, that time could be better spent helping more clients with their debt advice. I hope the Minister will be able to indicate whether the Government will now require FCA authorisation.
As I said, the Government have shown a very welcome intention to act in this space. I thank and pay tribute to Treasury Ministers for that. However, as we heard in the Chancellor’s Budget Statement today, it is not just the public finances that are being thrown into disarray by Covid. Sadly, more households’ and individuals’ personal debt situations will have been created or exacerbated by the past 12 months. They will really need these schemes to help them get back on their feet. Therefore, I very much hope that the Minister will be able to confirm that the Government are minded to accept the 1 May 2024 dead- line and also to answer the points raised by other noble Lords in these amendments to help to confirm exactly how the Statutory Debt Repayment Plan will operate.
My Lords, I am delighted to follow the noble Baroness, Lady Morgan, in this debate on this group of amendments. I shall make particular reference to Amendments 52 and 67, introduced by the noble Baroness, Lady Coussins, and spoken to already by various noble Lords.
Clause 34 gives the Government powers to introduce a statutory debt repayment plan scheme, which is very welcome and which other noble Lords have already endorsed. It will significantly improve the protections offered to people in debt, who will be able to repay what they owe but over a longer timeframe. Like many noble Lords, I have received a briefing from the Money Advice Trust, which would like the Government to commit to a firm timetable for the scheme’s introduction. Hence, I support Amendment 52, which is a tidying-up amendment, and Amendment 67, which provides a timetable.
Amendment 52 and 67, tabled by the noble Baronesses, Lady Coussins and Lady Morgan, and the noble Lord, Lord Rooker, and spoken to by the noble Lord, Lord Holmes, would put a timetable for the introduction of statutory debt repayment plans in the Bill. The pandemic will have accentuated debt problems faced by businesses in the small to medium-sized sectors as well as by many individuals who are facing unemployment, the true number of whom will not be revealed until furlough ends. The noble Baroness, Lady Coussins, referred to the number of people—3.8 million, I think—who have missed payments during the pandemic. In fact, 3.2 million people struggle to make ends meet. Those are unacceptable, but realistic, figures that all of us must address, particularly the Government. It is vital that a scheme is put in place with a definitive timetable to enable debt repayment plans.
It is important that the Minister demonstrates support for these amendments and other amendments in this group which would add a requirement to the Bill that statutory debt repayment plans come into force, as per Amendment 67, by 1 May 2024 at the latest. That would provide time to develop and pass regulations and to set up the required systems and infrastructure to deliver the scheme while ensuring that introducing it remained a clear priority for the Treasury. I urge the Minister to set out a clear timetable today and to indicate that the Government will accept these amendments. Will he now commit to adding a timeframe for their introduction to the Bill, with the Covid-19 crisis producing so many financial challenges for people? As we heard earlier, many of those people have been subjected to sharks, moneylenders and tricksters, as the noble Lord, Lord Holmes, referred to. Ordinary people who find themselves in debt and find it difficult to repay it must be protected, and the best way to do that is to provide that date in the legislation. I know many people have faced financial challenges, so I ask the Minister to assure the Committee that introducing statutory debt repayment plans will remain an absolute priority for the Treasury, accompanied by the date of 1 May 2024.
My Lords, along with StepChange and many others working in the debt field, I welcome Clause 34, which I hope will provide some support and protection for vulnerable people with problem debts. I also very much welcome the amendments in the names of the noble Baronesses, Lady Coussins and Lady Morgan. I will not speak to those amendments, because all the main points have been extremely well made by the two Baronesses. However, I have the permission of the Government Whips Office—
Baroness Meacher, forgive me, we are about to go into a Division, so if you will allow us to have an Adjournment for five minutes then we will return to your speech.
Get your finger ready for button pressing.
Sitting suspended for a Division in the House.
My Lords, I will start my sentence again. I have the permission of the Government Whips’ Office to speak to Amendment 136F in my name, which should be in this group but appears elsewhere. I have only just managed to table this amendment, and therefore other noble Lords have not had time to put their names to it, but I thank the noble Baroness, Lady Morgan, for expressing her support.
Amendment 136F seeks to introduce independent regulation for bailiffs and bailiff companies. The amendment builds on a Ministry of Justice review of bailiff issues that began in 2018, although we still await the report. The amendment does not specify who should regulate the industry, other than it should be subject to statutory regulation. It seems to us that is the job of the Treasury and the MoJ to work together to establish an appropriate framework. I want to give the Minister the opportunity to commit to meaningful reform, and I hope that he will be able to respond to that.
As noble Lords will know, bailiffs’ powers are quite extraordinary: to enter a person’s home, in some circumstances forcibly; to take possession of belongings as security against debt repayments; and, in extremis, to seize those goods. Of course, it is important that the law supports creditors to recover money owed to them, but it is equally important that the law should regulate debt recovery action, with controls to protect people who are vulnerable and those in financial difficulty from further hardship and harm. At the moment, there is a tremendous amount of further hardship and harm.
The Government recognise the importance of this in numerous places. We have debated Clause 34 concerning a debt respite scheme to protect the financially vulnerable. The Government have equipped the Financial Conduct Authority with the resources and powers to supervise firms’ conduct and ensure that key consumer protection issues, such as affordability and vulnerability, are taken into account. There are binding rules and standards on debt recovery action, a toolkit of sanctions and an accessible consumer redress scheme. All these factors prove strong incentives for firms to abide by the rules. However, despite bailiffs having the most intrusive and potentially harmful powers, there is no similar effective framework of oversight for bailiff enforcement. This is surely a glaring anomaly, which should be rectified in the Bill.
Bailiff enforcement is not a small matter. It is very common, particularly among public sector creditors. Research for the Money Advice Trust found that local authorities alone had referred 2.6 million debts to bailiffs in 2018-19. As Citizens Advice has shown, the number of people facing bailiff enforcements for small amounts of unpaid council tax debt is likely to double as a result of the pandemic to more than 3 million households. A significant proportion of those people will be in very vulnerable situations. Some 40% of people with bailiff issues helped by Citizens Advice have a disability or a long-term health condition, and 58% of StepChange clients with an additional vulnerability were subject to bailiff action on their council tax arrears.
The 2014 regulations attempted to codify the taking control of goods process and set a standard rate of fees to be charged at each stage. They were accompanied by voluntary national standards that bailiffs were supposed to follow—the emphasis being on “voluntary”, I think. However, while full of good intentions, the 2014 regulations have failed. They have failed to stop bailiffs misusing their powers; they have failed to stop debts being escalated to more expensive types of enforcement, probably benefiting the bailiffs; and they have failed on the basics such as incentivising affordable repayment and ensuring consistent, fair treatment of people in vulnerable situations. Why is this? Perhaps most importantly, the regulations did not address the need to regulate the enforcement firms which dominate both the market and control of bailiff conduct. It is not just me saying this; the Justice Select Committee said in its 2019 report that focusing reform on certificating individual bailiffs was a misguided “rubber-stamping exercise”. It was shooting at the wrong target.
The Government’s freeze on bailiff visits at the start of the pandemic was welcome. They said at the time that this was necessary because of financial pressures and incentives in the industry that risked driving poor practice—but of course that is not just during the pandemic. At the end of August, bailiff visits were allowed to resume. Why? Since then, and with few exceptions, the Government have relied on the industry largely to police itself. This has been deeply concerning and, sadly—perhaps inevitably—bailiff rule-breaking has continued. Debt advice charities such as StepChange and the Money Advice Trust report numerous cases of bailiffs threatening to enter people’s homes even though guidance on coronavirus is quite explicit: this is not allowed. This follows a pattern prior to the pandemic where more than one in three people contacted by bailiffs—around 850,000 people in England and Wales—said that they had seen a bailiff breaking the rules, such as by forcing entry into a home or removing goods needed for work.
Millions of people have faced a prolonged fall in income as a result of this pandemic, and many are in debt that they are struggling to resolve, yet the evidence shows bailiffs refusing to accept affordable payment offers. This is one of the biggest problems that households face. Twenty-nine per cent of people answering a StepChange website survey said that they had tried to arrange payments on the phone, but the bailiff insisted on visiting. Why? It was to collect their levy of £235. Industry figures in the run-up to the pandemic showed that between 50% and 60% of cases were escalated by bailiffs to a doorstep visit, and we know why.
I spoke earlier about the contrast in the approaches to bailiff rule-breaking and to regulated debt collection. That is why this amendment fits in this group. It is now more than two years since the Government’s call for evidence on bailiffs closed and a response is still pending. When the Justice Committee reported in 2019, it expressed surprise at how “under-regulated” bailiffs were compared with debt collectors. It concluded that the Government should introduce an independent bailiffs regulator for enforcement agents and an independent complaints body to make sure that bailiffs stick by the rules. In July of that year, the then Lord Chancellor made a Written Statement confirming the Government’s belief that regulation of the enforcement sector could be strengthened. It has not happened yet of course.
This amendment offers a way forward. It allows for the FSMA regime which applies to debt collection firms to be applied to bailiffs and bailiff companies in a tailored and proportionate way.
The amendment takes no view on whether responsibility for bailiff regulation should be held by the FCA by default or be designated by the Government to a new independent body. What matters is not who, but that the regulator, whoever they are, is a powerful, independent and capable body, able to bite down on bad practice, ensure consistently high standards and adapt to ever-present change. Most importantly, my amendment sets a framework and a generous timetable for the Government to work on the detail and get an effective, independent regulator up and running.
In summary, the enforcement sector we are concerned with here is largely composed of private firms collecting mainly public sector debt. The sector operates largely by its own rules, set by a trade body, not a regulator, and touches the lives of millions of people every year, often the most vulnerable people in our society. A range of august bodies—I have referred to the Justice Committee but could equally have referred to the Treasury Committee and the NAO as well—have highlighted the problems with conduct and other consumer protection issues that follow from lack of independent oversight. There could be no better time to remedy this long-standing problem, given the huge increase in debt as a result of Covid.
I ask Peers to join me in supporting Amendment 136F, but this will have to be on Report. I hope the Minister will respond to Amendment 136F at the end of the group beginning with Amendment 79, where it is currently, wrongly, grouped. I beg to move.
My Lords, I spoke at length on the previous group, so I am going to pay penance and try to be much briefer on this one, even though this is an issue that I also care about passionately. I do not think I can start without acknowledging all the incredible work done by the noble Lord, Lord Stevenson, in this arena. He has genuinely moved the issue on by sheer determination, a baton now picked up by the noble Baroness, Lady Coussins.
The statutory debt repayment plan element of the debt respite scheme needs to come into effect as soon as possible. I suspect that we all acknowledge that, but the impact of Covid makes it more important than ever. When we talk about a timetable—I am thinking of the speeches by the noble Baronesses, Lady Morgan and Lady Ritchie—we know that a group of people who will probably never have experienced financial difficulties will now be drawn into a system where they are overwhelmed by their debts. One can see that this is an opportunity for the less scrupulous to take advantage. Even those who regard themselves as perfectly professional and ethical will look for weaknesses in the system in order to get paid. There is pressure on both sides. I have therefore added my name to Amendments 52 and 67.
The noble Lord, Lord Lucas, raised a number of interesting issues but he can probably take comfort in the fact that there is a sort of Scottish template, if you like, in that experience in Scotland will help to make sure that the programmes in England—I assume this covers Wales as well—will benefit and learn any necessary lessons. That should remove a lot of the anxiety and some of the teething problems.
The amendment in the name of the noble Baroness, Lady Meacher, is completely new to me. It seems entirely logical that we should have a proper framework of oversight for bailiff enforcement.
I also strongly support Amendment 111, in the name of the noble Lord, Lord Holmes, to bring lead generators for debt advice and debt solution services under FCA regulation. I have worked on many financial services Bills over the years, particularly on the consumer side, and it is almost breathtaking how many people and groups are totally unscrupulous and use any opportunity to gouge people when they are anxious and worried. One can just see the exploitation that could happen here. I ask that the issue be taken more broadly, that the FCA go on the front foot and anticipate where unscrupulous individuals might try to exploit the situation, and that we see if we can to some extent head it off at the pass. We are quite good at doing something when thousands of people are complaining that they have been taken advantage of; it might be very useful if we turn that around and try to anticipate where trouble could come from and see whether we can deal with it.
The issues have been so well laid out by others that I will not repeat them, but I join in asking the Government to respond to these amendments, particularly those on the timetable, with some very strong assurances at the very least.
My Lords, we have spent an hour and a quarter debating a clause that is two thirds of a page long in a 182-page Bill. This, at first sight, might seem unreasonable, but when you look at the clause from the point of the view of the individual citizen, it is probably one of the most important in the Bill, so it is right that we have done so. There are an amazing 19 amendments to this clause, which would normally imply concerted opposition. In fact, that has not been the mood of the debate at all.
To sum the clause up, it has dealt well with one of the concepts, but we have too little detail. My noble friend Lord Stevenson of Balmacara seems in many ways to have been the father of this concept, and I congratulate him. We have adjacent desks, and I have seen him busily dealing with issues such as this. His two amendments seek to flesh out how the clause would bring in proper regulation, a degree of reasonableness and recognition of the role of bodies related to national and local government; they also address the importance of protection from bailiffs, and funding.
The noble Baroness, Lady Coussins, brought in the idea that we must have a hard deadline, and the noble Lord, Lord Holmes of Richmond, introduced the concept that we need advice for individuals. A timetable of December 2024 was gazumped by the noble Baroness, who suggested instead May 2024. It is important that the funding issues be addressed, especially if this fine concept is improved, because it could always go wrong if they are not faced up to. Again, this brings home the importance of regulation.
Finally, we have the 11 amendments from the noble Lord, Lord Lucas. I hope he will not mind me saying that they are very “Lord Lucas-like”, with each small detail adding value to this legislation. I say that in order to illustrate that most of the amendments are complementary.
I ask the Minister to recognise the degree of clear, cross-party consensus on this important clause. Many people have urged him to make concessions. My experience is that Ministers making concessions on the hoof is considered rather dangerous; hence, this is unlikely. But I do strongly urge him not to reject too many of these ideas. His brief probably says that the wording will not work. Wording never works when it is from the Back Benches, but the ideas work, and these ideas are powerful and need to be taken account of. I hope there will be a further round of conversations before Report, and that the Government will come back with a composite proposal that improves this important clause. I fear that if that does not happen, we will spend a lot of time on Report, and there will be a more muscular approach from those who tabled and who support these amendments.
My Lords, this has been an extremely detailed and thoughtful debate. I will try to answer as many points as I can in the time available, which I fear will be quite Parkinsonian and extend in line with the notes I have received. I am grateful for the general tenor of the debate; I think all of us in this House agree that there are profound problems here which we collectively, across parties, are seeking to address. I am grateful for that.
I will briefly explain the Government’s position before turning to the amendments. Obviously, the Government want to incentivise more of the people who could benefit from it to access professional debt advice, and access it sooner. To this end, we are introducing a debt respite scheme, as many noble Lords have said. The first part is the breathing space, which begins on 4 May, and the second part is the statutory debt repayment plan. The SDRP will be a new debt solution for people in problem debt and will provide a revised long-term agreement between the debtor and their creditors on the amount owed and a manageable timetable over which it has to be repaid. It is intended that during their plan, debtors will be protected from most credit enforcement action and from certain interest and charges on debts in the plan.
My noble friend Lady Morgan asked whether bailiffs can be sent in during a moratorium or SDRP. During a moratorium, a court or tribunal must not instruct a bailiff to take action. It is intended that, during an SDRP, enforcement action would also be paused.
These amendments seek to require the Government to include certain features in the debt respite scheme, including specific requirements relating to breathing space. Amendments 52 and 67, which many noble Lords have spoken to, seek to set a deadline of 1 May 2024 for the SDRP to be implemented. Similarly, Amendment 68 would require the Government to publish a timetable, with a requirement for the scheme to take on clients before the end of 2024.
I am sympathetic to the intention behind these amendments and am grateful for the chance to address the timing of the SDRP and for the discussions we have been able to have and the genuine and positive engagement with noble Lords prior to this stage and—who knows?—afterwards. The consultation response published in June 2019 set out areas that required further policy work and consultation. Given the challenges and complexity involved, the Government continue to work closely with the debt advice sector, creditors and regulators to make sure that the policy can be implemented successfully and that everyone involved has time to prepare. Setting a hard deadline for the SDRP risks tying all our stakeholders’ hands unnecessarily and arbitrarily limiting the time they have available to prepare properly.
I can nevertheless assure noble Lords that the Government are committed to implementing the SDRP in a timely manner. To that end, detailed regulations establishing the SDRP are currently being drafted and will be consulted on as soon as possible after this Bill receives Royal Assent. This process will ensure that the SDRP is not rushed and is developed to a high standard that can effectively support the individuals who will use it, as well as those who will operate it.
As my noble friend Lord Holmes of Richmond said, the noble Baroness, Lady Coussins, put her case most elegantly. Although a bad dancer myself, my wife would tell the Committee that it is much more congenial to dance to elegant music. I can say that the May 2024 date is consistent with the Government’s planning assumptions, although, for the reasons I have given, they do not agree that setting a specific date in primary legislation is an appropriate or practical way of ensuring this. The amendments as drafted would prevent the Government making further regulations on the whole of the debt respite scheme after that date; this would be undesirable, as it would prevent the Government acting to amend the scheme in future—for example, in response to feedback.
The noble Baroness also asked when universal credit debt will be brought in to the scheme. UC overpayments will be included in the breathing space scheme from day one. UC advances, which the noble Baroness asked about, will be included in the scheme, on a phased basis, as soon as possible, as will third-party deductions. This does, however, require significant IT changes, but I assure the noble Baroness that the Government recognise the importance of including all UC debts as soon as possible. I hope that, having heard the debate, noble Lords will accept that we will reflect on what further clarity might be offered on a timetable, short of a statutory tie, and that what I have said on this will be reassuring.
Amendment 53 would expressly enable the regulations to cover the provision of debt advice. I assure my noble friend Lord Holmes that this is possible under the existing powers. It is already built in to the breathing space and is intended to be built in to the SDRP parts of the scheme. Indeed, the scheme cannot work without professional debt advice provision and the Government are aware of its importance. Amendments 56, 57 and 58, in the name of my noble friend Lord Lucas, affect the debt advice provider in breathing space, including extending the 60-day period of respite in breathing space, varying the time in which the debt adviser must conduct a midway review, or allowing the debt adviser to exclude certain debts from the scheme.
Amendments 61, 62 and 65 focus on the creditor, including the possibility of regulations being made which vary the time creditors have to comply with notifications, among other implications. The Financial Guidance and Claims Act 2018 delegated the detail of the debt respite scheme to secondary regulations, thus providing the Government with broad powers to design the scheme and implement it, rather than specifying implementation decisions in primary legislation. The Government have already set out their approach to the debt respite scheme as a whole in their response in June 2019, following the consultation they carried out. The policy aims to strike a fine balance between the interests of the debtor, debt advice provider and creditor. That was recognised in the speech by my noble friend Lord Lucas. My noble friend asked if joint debts would be included. Joint debts can be included in a moratorium, even if only one party seeks it. However, the other party’s other debts are unaffected. A moratorium applies to a debt, not a debtor.
Many of the aspects covered by these amendments are already factored in to the scheme design and, should the Government wish to make further changes to the breathing space regulations in future, they would not require these amendments to be made in order to do it. We will be glad to exchange further information with my noble friend Lord Lucas to reassure him further. He may ask whether, if the Government can already do these things, they will commit to do them. I assure noble Lords that the Government listen with respect and intend this scheme to be successful and useful. As I have already set out, there is still significant policy work to do on the SDRP, which is why the Government have committed to publishing draft regulations and consulting on them as soon as possible. With less than three months to go until the start of the breathing space scheme, it is important to have certainty and stability in the requirements to allow everyone affected to make the appropriate preparations. The matters which noble Lords have raised in their amendments will be kept under very close review.
Amendments 54 and 59 suggest changes to the Financial Guidance and Claims Act that would allow the Government to include specific provisions to the debt respite scheme. I assure noble Lords that Section 7 of that Act, as amended by Clause 34 of this Bill, will contain powers to allow the Government to include such measures as are suggested in this amendment. I recognise that Amendment 54, in the name of the noble Lord, Lord Stevenson, is intended to suggest certain design features for the SDRP. I will attempt to reassure noble Lords on the points raised, but not exclusively. As with my response to my noble friend Lord Lucas, we would certainly accept the noble Lord’s invitation to write to clarify further.
Amendment 54 seeks to require that debt advice providers be authorised by the FCA. It is envisaged, as set out in our response, that only debt advice providers with appropriate FCA authorisation will be able to offer an SDRP, unless they are a local authority which offers money advice and is exempt from FCA authorisation. This would mirror what has been legislated for in the Breathing Space scheme in secondary legislation. The noble Lord, Lord Stevenson, asked for further clarity on this point—on which local authorities will be able to start Breathing Space. It applies only to those local authorities that offer debt counselling to residents. It is intended that those same debt advisers will be able to offer SDRPs when they are implemented.
Amendment 54 also suggests that only authorised charities or not-for-profit organisations should be allowed to become payment distributors. The 2019 consultation response explained that either debt advice agencies with FCA permissions for handling client money or the Insolvency Service should act as payment distributors. If commercial debt advice agencies do this, it is intended that they will be entitled only to the same percentage of monthly payments available to other types of payment distributor in the scheme. It is intended that they will not be able to charge debtors any fees for delivering any other aspect of the SDRP. Powers to determine a reasonable level for the charges in the scheme, to require debts owed to the Government and other public bodies and service providers to be included, and to protect against enforcement action by court-appointed enforcement agents, are already provided for in the clause we are debating.
Amendment 59 suggests the introduction of penalties for creditor non-compliance. Section 7 of the Financial Guidance and Claims Act already provides powers to impose consequences on creditors, so this amendment is unnecessary. I repeat that the Government have committed to publishing draft regulations and consulting on them as soon as possible after the Bill receives Royal Assent. That consultation will offer all those who are interested in the SDRP, including noble Lords, to consider the proposals and offer their feedback on the Government’s design for the scheme, ensuring that it is fit for purpose.
My noble friend Lady Morgan asked how the scheme would be funded. The Government intend for the administrative costs of the scheme to be funded by deducting an amount from debtors’ repayments. The funding model aims to ensure that it remains sustainable to operate for debt advice agencies while providing fairness to creditors—but I acknowledge that the noble Lord, Lord Stevenson, probed a little further on that.
Turning to reviews, which are the subject of Amendments 60, 69 and 70, I can confirm that the Government are already committed to carrying out full and proper evaluations of both the Breathing Space scheme and SDRP after their commencement and will keep the matters raised by noble Lords under review. The Government are already required by law to carry out a review of Breathing Space within five years of its commencement. I can confirm that the Government are happy to continue to engage with my noble friend Lord Lucas on this issue to ensure that the views of stakeholders are heard. On Amendment 60 in particular, the Government continue to work closely with the Money and Pensions Service, the Financial Conduct Authority and other stakeholders to monitor personal finances, including financial resilience and the impact of debt on individuals.
On Amendments 63 and 64, my noble friend Lord Lucas asked whether the scheme was ready to go. His amendments would not permit regulations to commence until certain aspects of the Insolvency Service and court system’s IT services had been delivered. The Treasury understands that the Insolvency Service and Courts Service are on track to deliver the necessary functionality for debt advisers and creditors to comply with Breathing Space. Officials have engaged extensively with a broad range of creditors to ensure that they understand their obligations under the scheme and are making any necessary IT systems changes. Guidance for debt advisers and creditors was published in December 2020 to assist with that process, and the Money and Pensions Service is delivering training for debt advisers this month.
The start date for this scheme—4 May 2021—was set in regulations and agreed by both Houses last year, and the Government consider that implementing the Breathing Space scheme on time is a priority. Delaying implementation of a scheme that is due to start in less than three months would be unnecessary, unhelpful and harmful to debtors, who desperately need the relief this scheme offers, as all noble Lords have agreed.
On Amendment 111, which my noble friend Lord Holmes described as a “Nelson amendment”—some of us would be rather relieved if the England cricket team could make 111—the Government are taking strong steps to ensure that lead generators do not cause consumer harm. I recognise the importance of the issue. Lead generators identify consumers in problem debt and refer them to debt advice firms and to insolvency practitioners. This can help consumers access appropriate debt solutions and support their recovery to a stable financial footing. However, I recognise the risk that unscrupulous lead generators could act contrary to client interests. To mitigate this risk, debt advice firms and insolvency practitioners are already required to ensure that any lead generators that they use are compliant with applicable rules to prevent consumer harm in the market.
Since May, the new insolvency code of ethics has required insolvency practitioners to ensure that any third party they use to procure work, including lead generators, complies with the principles of the code. Under FCA rules, this includes ensuring that lead generators do not imitate charities or deliver unregulated debt advice, and that they are transparent with clients about their commercial interests. As such the FCA, as the regulator of debt advice firms, and the Insolvency Service, as oversight regulator of insolvency practitioners, already influence lead generators’ impacts on consumers.
Amendment 111 would not materially improve the FCA’s influence over lead generators. Its scope would be incomplete, applying only in respect of lead generators’ referrals to debt advice firms, not to insolvency practitioners. The Government have already issued a call for evidence on whether changes are needed to the regulatory framework for the insolvency profession and will publish a response this year. However, obviously I acknowledge the comments and concerns expressed by noble Lords in the debate today. We are certainly ready to meet my noble friend Lord Holmes and others before Report.
I thought that was the conclusion but the noble Baroness, Lady Meacher, raised the issue of bailiffs. Although that is otherwise grouped, since it was also raised by my noble friend Lady Morgan it might be helpful to the Committee if I responded to the noble Baroness, Lady Meacher, now rather than some hours later or even on another day.
The Government recognise the damage that the overly aggressive pursuit of debt can do to individuals and understand the importance of debts being enforced in a fair and proportionate way. The amendment as proposed would make enforcement agents—bailiffs or bailiff firms—who are legally authorised to take control of goods subject to regulation by the FCA. This would significantly expand the scope of the FCA’s current regulatory activities. The current scope is limited to certain debt collection agencies and debt administrators. It is focused on debts arising under credit agreements, consumer hire agreements and regulated peer-to-peer loans. Collection of utility debts, company debts, council tax and rental arrears, taken forward by enforcement agents, are rightly excluded from the FCA’s remit as such debts do not arise from credit agreements. Taking responsibility for the regulation of enforcement agents would therefore be a significant scope change for the FCA and, in our judgment, would not be appropriate.
However, the Ministry of Justice, which leads on enforcement agents, is currently reviewing the case for strengthening regulation in this sector. This is as part of the second review of the 2014 “taking control of goods” reforms and includes considering the recommendations made by the Justice Select Committee in 2019 in its inquiry into debt enforcement.
The 2014 taking control of goods reforms represented an important package of measures with the aim of protecting vulnerable debtors from aggressive behaviour by enforcement agents while balancing that against the need for enforcement action. They introduced a set of rules that detailed what steps an enforcement agent must take before they can take control of goods. The rules set out what goods an enforcement agent can and cannot take, how and when they can enter premises and the fees that they can charge. They introduced mandatory training and a new certification process. Enforcement agents must appear in front of a judge in the county court every two years to demonstrate that they continue to meet the certification requirements.
However, in 2018 the Ministry of Justice launched a call for evidence, as has been said, to inform its second review of the reforms. That important work is still ongoing and the MoJ intends to respond as soon as possible. The impact of Covid-19 meant that resources had to be diverted temporarily to the more urgent priority of relieving burdens on businesses to help them to survive the pandemic—namely, the introduction of the Corporate Insolvency and Governance Act—but I assure noble Lords that work on the review of regulation in this area has now resumed, and the Government’s response will be issued this year. I hope the Committee will forgive me for speaking at so great a length to respond to the noble Baroness, Lady Meacher, on the point about bailiffs, but it was raised and I thought it would be material and helpful to respond now.
Overall, with those explanations, and with the undertakings that I have given to engage further with noble Lords, I hope they will feel able to withdraw or not move the amendments in this group.
I thank all noble Lords who have contributed to the debate on this important group of amendments, especially those who supported my own two amendments on the introduction of SDRPs.
I am extremely grateful to the Minister for such an encouraging and sympathetic response. I will say only that the inclusion of the date of 1 May 2024 is there not as a fixed date but as a “no later than” date. Nevertheless, he has given me enough hope that we might meet again between now and Report to have a further discussion on this issue to see if any further progress can be made. In the meantime, I beg leave to withdraw the amendment.
Amendment 52 withdrawn.
Amendments 53 and 54 not moved.
We now come to the group consisting of Amendment 55.
55: Clause 34, page 40, line 30, at end insert—
“(4B) The regulations must also include the following as part of the scheme—(a) provision to ensure that any debts appearing on a repayment plan, which have either—(i) been sold by originating lenders to debt purchasing companies prior to the debtor entering the scheme, or(ii) been sold by originating lenders to debt purchasing companies whilst the debtor is in the scheme,are subject to what is to be known as a “fair debt write-down”; (b) that the level of the fair debt write-down must be calculated by the amount paid by the debt purchasing company for the debt plus no more than twenty per cent of the value of the debt;(c) that no more than the amount calculated under paragraph (b) may be collected in respect of any debts to which a fair debt write-down applies throughout the course of the debt repayment plan; and(d) that at the end of an individual’s debt repayment plan, any outstanding amount in respect of debts to which a fair debt write-down has applied is unenforceable against the debtor and must be treated as if fully discharged by virtue of section 251I of the Insolvency Act 1986 (discharge from qualifying debts).”Member’s explanatory statement
This amendment seeks to ensure that debts which have been sold by originating lenders on the secondary debt market are written down to a fair level.
My Lords, I beg to move Amendment 55, which appears in my name and has attracted the most welcome support of the right reverend Prelate the Bishop of St Albans. I thank all noble Lords who have put their names down to speak in this group.
The amendment is modest in scope but highly practical in action. It addresses actions that could greatly improve the lives of people who desperately need that boost, as the noble Lord, Lord Tunnicliffe, said in summing up the previous debate. It also relates to Clause 34, but I think it makes a large enough difference to the plans that it needs to be considered alone, as useful and helpful as many proposals in the previous group were. It brings in a concept of debt write-off or debt write-down—something that I suspect will become part of many debates in your Lordships’ House in the coming years.
We were talking in the first group of amendments about flows of billions of pounds, Russian moguls and massive lumps of cash. Here we are talking about the lives of people for whom a 50p cup of tea in the local café is a luxury, for whom the disintegration of a long-nursed pair of shoes is a crisis. In the previous group many speakers referred to how Covid has made millions of debtors’ lives much harder, but this is not —or at least not just—an emergency pandemic measure.
If we look back a decade ago, debt often arose because of a sudden crisis, such as a car breaking down or a washing machine failing to start, or sometimes because the siren call of the payday lender or predatory credit card provider had proved irresistible. However, over the past decade, for hundreds of thousands of households, the persistent inadequacy of income, in most cases income coming through work with added benefits, has still not been enough, week after week, month after month, year after year, to meet basic needs. Debts have built up: essential debts such as council tax, and gas and electricity bills, even when resort to a food bank provided some brief moment of relief. For millions of Britons, finance—we are taking about the Financial Services Bill—means being trapped and overindebted. That is the situation of one in five adults, more than 8 million people, according to the Financial Conduct Authority. Even if we were to suddenly miraculously snap our fingers and lift the minimum wage to the real living wage and ensure that benefits met the level needed to pay essential bills—a very loud snap indeed—there would still be a huge mound of debt remaining.
I pay tribute to the Centre for Responsible Credit, which has done extensive work on this amendment and from which I think noble Lords will have received a briefing. This is not a political amendment but very much a practical one to address an issue that I hope the Committee will allow me to explain at a little length. In the debate on the last amendment, we were introduced to the Government’s debt respite scheme, which is intended to provide people who seek debt advice respite from enforcement proceedings for 60 days. Clause 34 creates an additional statutory debt repayment plan, a formal plan with creditors to repay all debts over a manageable period with protection from the bailiffs in the meantime. Crucially, that timeframe will generally be seven years, although it may be up to 10.
To set the scene for why we need this amendment, why we need a fair debt write-down, I will explain the other three means by which unpayable debt can be dealt with. Perhaps the best known is bankruptcy, which is reserved for debtors with significant assets that need to be liquidated and the proceeds distributed among creditors. Generally, the debts are discharged in full after one year. Next in terms of debt scale are individual voluntary arrangements, which were originally intended to allow home owners with significant levels of surplus income, after taking account of essential outgoings, to retain their home and secure a partial debt write-off. Resolution is generally achieved over five to six years. Remember, the idea is that people will still stay in their home. At the bottom of the income scale are debt relief orders. These were brought in 2009 for low-income, low-asset debtors, who see their debt discharged after one year. Access is by approved debt advisers but, to be eligible, conditions are tight.
However, many people fall in the middle, between IVAs and debt relief orders, and increasing numbers of IVAs are failing. There is a significant number of reports of them being mis-sold. Changes to debt orders are planned to enable them to encompass more people, but many will still fall in the gap between these two groups. Significant numbers of people are likely to be taking out statutory debt repayment plans, but as currently constituted there are problems. People are being assessed to see if they can repay the entirety of their debts over up to 10 years, based on a calculation of surplus income using the standard financial statement spending guidelines provided by the Money and Pensions Service. During the period of the plan, any increased income will be directed towards repayment of creditors, trapping people and actively discouraging them from taking up any opportunities that might, with a different plan, improve their circumstances. I also note that we have a transparency problem here with the standard financial statement not being in the public domain due to the Money and Pensions Service licensing terms. In summary, though, the key issue is that people under SDRPs are being trapped for up to 10 years, and certainly seven years, and locked into circumstances for at least double—and, potentially, 10 times—the length of other schemes.
I turn now to question of the debts and the companies that hold them. A large portion of these debts have already been written off by the originating lenders and sold on the secondary debt market. In 2018, the Financial Times reported that more than half the money being collected through debt management plans had been sold on in the secondary market. A presentation by the chair of the Credit Services Association in 2019 indicated that, in the preceding year, the total value of debt purchased by such firms was more than £55 billion. According to the 2019 annual report of one of the main debt purchasing firms, Cabot Credit Management Group Ltd, the average long-term purchase price for the debt averages 9p in the pound. So we have a potential 10-year debt repayment period, with 10 years of dragging fear, worry and poverty, and an industry that has purchased the right to impose that weight for less than 10% of the cost of the face value of the debts.
I could, and I will, point to the moral case for reducing that weight and also for insuring that the secondary debt market, as essential as it is to clear company spreadsheets, is not a source of windfall profits from misery. But for those who want to put this in financial terms in costs to society, we know that indebtedness—remember that potentially one in five Britons is indebted —is linked to relationship breakdown, ill health, constraints on job seeking, impaired productivity, loss of housing, damage to children’s education and even suicide. In 2018, the National Audit Office estimated that 8% of overindebted individuals would be more likely to experience anxiety or depression with total costs that could rise to £11,000 per person per year.
The proposal in Amendment 55 is simple: it is that the costs be shared and that the secondary debt purchaser will not be able to collect more than an additional 20% of the debt plus what it paid for it. The indebted individual will know that there will be a fair and fully discharged position at the end of the period and society will be spared significant long-term costs. I beg to move.
My Lords, I am glad to speak to Amendment 55 in the name of the noble Baroness, Lady Bennett. I placed my name to this amendment because of my concerns over indebtedness and particularly over the huge growth of household debt that has occurred during the Covid pandemic. Like the noble Baroness, Lady Bennett, I thank the Centre for Responsible Credit for the work it has undertaken on this amendment.
Last year, four Christian denominations and Church Action on Poverty published Reset the Debt. It documented the astonishing growth in indebtedness that occurred during the first lockdown and the summer. At that time, there was a hope that the economy would begin to reopen and bounce back, bringing a return to normality which would allow many people to get a handle on their growing debts. Unfortunately, the second spike in infections and increases in death meant that that economic reopening failed to materialise in the way we had hoped, causing conditions to worsen for many of those in debt. Furlough has been a lifesaver for many, and I congratulate Her Majesty’s Government on that policy, but there is a well-placed fear that once the economy opens redundancies will increase further, creating extra pressures on those who are already struggling. To quote the report:
“The lockdown continues to have profoundly unequal and poverty-increasing effects”.
At the time when the report was published, 6 million people had fallen behind on rent, council tax and other household bills because of coronavirus, with low-income families particularly turning to credit cards and overdrafts simply to survive. Covid debts, although particularly damaging for the poor, have significantly affected a variety of lower to middle-income households. This is on top of the existing debt that some of these households had incurred.
Over these past months, I have been struck by the many reports that I have received from churches, chaplaincies and charities across Hertfordshire and Bedfordshire in my diocese. They all describe the huge increase in demand from foodbanks and parish pantries, along with many more people seeking advice and relief from our of services and charities. In most cases, debt is not the consequence of a single factor but has slowly built up. However, Covid has speeded things up in a terrifying way. For the absolute poorest, debt relief orders may provide a lasting reprieve after a one-year period but many other households will be much less fortunate. Those households with a disposable income level of more than £100 per month, when compared with the lowest-income quintile, face difficult decisions and may end up being placed on a statutory debt-repayment plan and, as the noble Baroness, Lady Bennett, pointed out, may endure 10 years of full debt repayment. This can be egregious when that debt has been partially or even substantially written off and sold on to the secondary market.
Debt financing plays an important role in our economy and, despite my reservations about debt recovery practices, allows firms to profit from debt, which remains an unfortunate but perhaps necessary part of our economy. However, at the same time, there needs to be a balance. When debt has been partially written off, discounted and sold on to the secondary market, there is a strong moral case to pass on some of this discount to the debtor. It would be wrong to force an individual into misery and penury for the purpose of a full debt repayment when the original creditor readily discounted the debt to shift it on to a secondary buyer.
The amendment does not bar the purchaser of secondary debt from making a profit but merely places a limitation on how much can be reclaimed, and rightfully passes on a portion of the discount to the debtor. Limiting the potential return to more than 20% could even reduce the financial risk associated with purchasing secondary debt and may produce a more co-operative and less fearful environment for debtors and the recovery of debt.
Finally, it is worth reiterating the positive financial impacts that this would have on the Treasury. Allowing the full amount to be reclaimed may enrich the owners of the debt but will certainly cost the Treasury. As the noble Baroness, Lady Bennett, points out, debt leads to horrifying social consequences, all of which cost the taxpayer. In not allowing the discounts from partially written-off debts to be given to the debtor, we would, in effect, be partially subsidising the social cost of debt, potentially to the tune of millions or perhaps even billions of pounds per annum. Given the increased debt resulting from the Covid crisis, morally it makes sense—there is also a strong economic case—to pass on the discounted price of the debt to people in severe financial difficulties and provide them with a fair debt write-down.
My Lords, I am delighted to follow the right reverend Prelate. We both sit on the rural action group of the Church of England. I should also declare that as a Bar apprentice in Edinburgh, one of my first duties was as a debt collector. I cannot claim that I had any particular training in that regard, and I was probably the least sympathetic at the time, given my youth and inexperience. I therefore congratulate the noble Baroness, Lady Bennett, on the research that she has carried out in preparing for the amendment and bringing it forward. I also thank the Reset The Debt campaign for what they have achieved, as well as the Church Action on Poverty campaign in bringing these issues to the fore.
It may be that my noble friend the Minister is not minded to look sympathetically on the amendment but, at the very least, I ask him whether he accepts that there is a problem that needs to be addressed in this regard, for the simple reason that there will be an uplift in council tax of some 5% in some areas. It would also seem that, as yet, we have failed to address the issue of zero-hour contracts, which remains vexatious.
In moving the amendment, the noble Baroness, Lady Bennett, referred to food banks. My experience is not that recent but occurred between 2010 and 2015, when I had cause to visit them in my area. What impressed me most is that it was often not people on benefits who used them but those in work but who did not work sufficient hours to make ends meet. This is a category of people to whom we owe something, and is an issue that should be addressed.
In particular, I ask my noble friend what instruction is given to IVAs and others that administer debt relief orders on the power they have to be more sympathetic to and imaginative about the circumstances in which debtors find themselves. Given the rather modest remit set out in Amendment 55, I hope that my noble friend might look at it fairly sympathetically. If he feels unable to support it, perhaps he will bring forward something along these lines at the next stage.
I want to say a few words at this late hour strongly in favour of Amendment 55 and mention the possibility of a wider-ranging debt jubilee. There is clearly a case for this amendment, and the same case can be made for a wider-ranging approach to relieving the burden that debt places on us all, not just on the individuals. Clearly it ruins lives and leads to much misery, but it also affects the rest of us: it acts as a drag on the economy and the recovery that we now so desperately need. Anything that we as a society can do to relieve the absolute burden of debt, the better.
The proposal in the amendment for a fair debt write-down is a welcome development to the debt relief scheme. The moral case for passing on some of the discount that currently goes to debt collection agencies is clear, and there is an advantage to the Treasury. The same case fundamentally applies to us as a whole. We need a more comprehensive package of debt cancellations, targeted at the household sector. We want a way of writing off debts, just as so many debts were written off in the financial sector 12 or 13 years ago. We were told then that some banks were too big to fail, because of the harm it would cause the economy. I argue that the challenges facing individuals, because of their debt, mean as much or even greater harm for us all.
The main argument today is that such a scheme, as well as relieving much individual misery, would provide a direct, targeted macroeconomic boost to the economy, exactly where it is needed, helping some of the most hard-up in our society. It will boost economic growth, and help those who have fallen into the misery of debt—and all of us.
My Lords, I will offer a slightly different perspective on this. I understand the problems of overindebtedness among poor people, but I do not believe that Amendment 55 makes sense. If I understand the proposed scheme correctly and if a debt under a debt respite scheme is sold for less than its face value, the original borrower has to pay back only that lower amount plus 20%. Let us say that I buy a debt with a face value of £100, for which I pay £80. I can recoup £96, which is £80 plus 20% of £80. That might seem reasonable on a loan-by-loan basis but, in practice, loans are sold in groups or books.
To the extent that there is a market for debt respite scheme debts, the amount that a purchaser pays will take account of two main things—first, the likelihood that the debt will be repaid; and, secondly, the difference between the income receivable on the debt, if any, and the purchaser’s cost of funds.
If we ignore the latter and focus on the likelihood of repayment, let me assume that I buy a book of five loans of £100 each and my assumption is that one in five of the debtors will default. I do not know which one, but I assume that one in five will not repay the debt. All other things being equal I will pay £400 for the book of loans, a 20% discount on the whole book. If one in five defaults, under Amendment 55 I would receive four times £96, or £384, for which I have paid £400. I would make a loss of £16. Of course, that means that I would not do a deal at £400, but the way that this amendment works is that I can never make a profit unless my assumption about default rates proves too conservative. Taking the example that I just gave, if I paid £384 for the book of debts, I would receive £368.64 from the four good debtors and make a loss of £15.36. I still would not do the deal.
If the other element of the calculation is taken into account, which is the cost of funds related to any income I was going to receive, the deal would be even less achievable. I do not believe there are any circumstances in which I would do a debt purchase deal if this amendment were passed, because it is a racing certainty that the book would not be made up of debts which would be repaid in full. The outcomes are even more extreme than my simplified example at higher levels of default.
The supporters of this amendment might not care very much whether it is possible to parcel up consumer debt subject to a debt respite scheme and sell it off, but the sale of debt is a normal part of financing arrangements for financial institutions. It frees up capital and liquidity from the original lending institution and allows that lender to use that capacity to make more consumer lending. Without access to that, some lenders would struggle to carry on where some of its debts are in semi-default via a debt respite scheme. I urge the noble Baroness, Lady Bennett of Manor Castle, and the right reverend Prelate to think very carefully about what they wish for.
My Lords, that was a very interesting intervention from the noble Baroness, Lady Noakes, which enhances her reputation as a banker of some repute. I am sure her figures are absolutely right; I was still writing them down as she finished. She has made the case that you need to be able to do these sorts of sums and mathematics if you are dealing with the sorts of debts we have been talking about for most of the afternoon.
I put my name down to speak on this debate, but not because I have a particular view on the merits of the amendment, which I thought was extremely well argued by the noble Baroness, Lady Bennett of Manor Castle. She raised issues on the wider context of how debts are managed in society, which I think the Committee will be very grateful for having on its mind as we focus on the issues. She gave us a tour d’horizon of the various ways in which those who run into unmanageable debt have to deal with the process of repaying, absent a debt respite scheme and absent a scheme under which statutory repayments are organised. They are extremely tough and, to go through an IVA, a debt relief order or full bankruptcy is not something that one would recommend to people if there was another way of doing it.
Indeed, part of the debates we have been having are about how wide we should take this discussion. As my noble friend Lord Davies of Brixton mentioned, the way debt impacts on society is something that is worthy of wider consideration in a more general sense rather than in relation to the particularity of the processes that we are involved in.
That said, it is good that we are having this debate about the wider context within which debt operates in society. It is not a debate that you hear very often, and it is an area of policy that could be afforded a lot more consideration. As such, I will join with the noble Baroness, Lady Noakes, in suggesting that the amendment should not progress at this stage, but for completely different reasons. I think there is a better way of dealing with this relating to the way debts are sold.
The argument that the noble Baroness, Lady Noakes, made, which is that this is how financial institutions obtain the liquidity necessary to maintain the cycle of lending on which we all depend, means that we need to have a better understanding of what happens when debts go wrong and when big institutions of the type that she talked about have to deal with the consequences. I do not mean to go through that in any real detail, but perhaps when the Minister responds he could take into account some of the thinking on this for when we look in detail at the regulations that he has promised us sight of on the statutory debt management plan, and in relation to what I think will be necessary at some point in the not-too-distant future: a reconsideration of the role of the debt relief order and the IVA’s structure, which is part and parcel of the process of dealing with this.
The essential point here is about how, and on what basis, those who have decisions to make about debt make them about individuals who have repayments to make. My understanding, picked up over the time that I was at StepChange, was that, by and large, we are not dealing with a very large proportion of society who are feckless about incurring debts. What tended to come across to me from looking at StepChange’s clients, listening in to the calls that were made to it and observing some of the emails and discussions around electronic systems was that most people—the huge majority—were appalled to be in unmanageable debt situations and were desperate to make a repayment. However, they did not have the financial knowledge and understanding of the system and the world in which they were operating to deal with it themselves. They needed help, which led to the debt advice and the subsequent process of repayment that we have been talking about.
However, at the heart of this is the same calculation that the noble Baroness, Lady Noakes, made: if someone in a credit card organisation or bank is lending money to someone and learns that that debt is going wrong, then there is an immediate calculation of the likely return from it. While we in this country stick to the idea that the creditor must always be repaid in full—or as close to it as possible—the reality is, as the noble Baroness, Lady Noakes, explained it, that a decision has to be reached about what proportion of that debt will be repaid and over what timescale.
My impression is that we are talking about a very large difference in perception. I return to the noble Baroness’s example of a £100 debt that goes bad—she says that one in five will not repay. In a sense, that is the start of the conversation that the person who made the loan has to have with their boss to assess what rate of recovery the loan will have. I believe that we need to have further understanding—not necessarily today or on this Bill—about how that process needs to work better for society. I agree with my noble friend Lord Davies of Brixton: a social issue needs to be addressed at some point, not necessarily today.
If it is true that a loan of £100 has a default rate of at least one in five—I suspect it is higher than that—then we should not be thinking in terms of trying to get a 100% return; we should set in our minds a figure that society could accept and which would be more reasonable in relation to the overall quantum of debt, better afforded by those who need to make repayments and more acceptable to those who do the lending. We are not yet there, and I do not have a solution to this; we are probably too early in the process of discussion and debate. I look forward to the Minister’s comments. This is a conversation that we should have more generally, away from a Bill, on a broader understanding of debt in society.
My Lords, the noble Baroness, Lady Noakes, and I very rarely seem to agree on the types of issues covered in this amendment, but on this one we are totally of one mind. I am very grateful because I tried to write an explanation of how this process would work and it was so inferior. The noble Baroness, Lady Noakes, not only explained it very clearly, step by step, but included numbers, which makes it much more evident.
I think there must be some misunderstanding. As the noble Baroness, Lady Noakes, explained, it is perfectly normal for an originating company to sell off the loans it has, sometimes because it can sell them to someone who has a different funding profile or a different tolerance for the average duration of the book of loans being sold, or because somebody may take a different view on how many of the loans will pay in full, pay in part or default. It is a perfectly standard process and provides liquidity to the market. As the noble Baroness, Lady Noakes, said, if an organisation had to keep all the loans it generated on its books and could not sell them off, it would find very quickly that it was constrained in doing any new business. That would be hugely damaging to many of the people who go out and borrow. It tends to be a completely different business that will buy loans in the secondary market.
The question that underpins this is: is the Statutory Debt Repayment Plan right and fair when it is put in place? If that is true, it should not matter if the money is paid to the originating company or to the secondary buyer. Within the portfolio, there will be some people who can and do meet the full obligations of the Statutory Debt Repayment Plan, and surely that is appropriate. There will be others who fail and end up in bankruptcy, and whoever is holding the loan will lose out.
My question is whether there is any read-over from the kind of issues we have had with mortgage prisoners. It is important that where there are expectations about how the original lender will behave, they are carried over to the secondary lender. For example, if the original lender is quite likely to offer an alternative loan or new terms and conditions or whatever else, you would expect to see that reflected in the secondary lender. I would not want a situation where the secondary lender was able to levy additional charges or put additional costs on the borrower that would not have been expected by the original lender but perhaps are not covered in the minutiae of the contract.
Otherwise, the honest truth is that I just do not understand this amendment. I am absolutely certain that it completely seizes up any possibility of having a secondary market, and the people who will pay the greatest consequence for that are those who need to go out and borrow from time to time and are at the margins of being appropriate borrowers.
My Lords, I think this debate brings out the fact that we do not fully understand this area. There is obviously a case for a great debate. We are, sadly, going to see many more people in heavy, chronic debt and we will see people—to use a colloquial term—fall apart. When people have debt and cannot see how they are going to cope, they lose their equity in society.
Perhaps I am being unfair, but I see a conflict here between people—human beings—and loan books and technocrats. That is not a very useful comment. I cannot argue that this particular amendment should be pressed, but the debate about it brings out that we almost certainly do not have all the mechanisms, and the understanding of the human beings involved, to face the many more people who will be in chronic debt when we, who are not in that situation, are talking about the Covid crisis being over. Those people need society’s help, and for them to have that, we need a much better understanding of the impacts on those people and how we can make sure that the excesses of the people who hold the books are restrained.
My Lords, we have already spoken at some length about the statutory debt repayment plan, so I will restrict my remarks to the amendment in front of us. Amendment 55 would require regulations to include a provision that would mean debts that have been sold by one creditor to another are subject to a fair debt write-down when they are included within an individual’s SDRP. Both my noble friend Lady Noakes and the noble Baroness, Lady Kramer, illustrated, from their position of great experience in these areas, some of the important issues that would need to be considered in an intervention of the kind proposed. The noble Lord, Lord Stevenson of Balmacara, made the same point from a slightly different perspective.
As its name suggests, the SDRP is intended to support the repayment of debts in full, over a manageable timeframe. The policy is not intended to provide debt relief, but a fair and sustainable way to improve debtors’ finances and returns to creditors. Other statutory debt solutions, such as debt relief orders, offer debt relief to people for whom repayment is not a realistic prospect. The Government recently launched a consultation on raising the financial threshold criteria for individuals entering a debt relief order.
The noble Baroness’s amendment would apply to debts which have been sold on, and not to other qualifying debts. The Government do not agree that it is necessary or desirable to treat these debts, or the people who owe them, differently from other debts and debtors in the scheme whose debts have not been sold on. People entering an SDRP will be in financial difficulties regardless of who the debts are owed to, and they all deserve fair and equitable treatment. I can, however, reassure the noble Baroness that, as per the 2019 consultation response, accrual of most interest, fees and charges will be prevented during a SDRP, so the amount of a person’s debt should not increase while they are repaying, regardless of who the debt is owned by or sold to in that period.
This amendment would also require any outstanding amounts owed in respect of sold-on debts to be treated as if fully discharged at the end of an SDRP. As the SDRP supports debtors to repay debts in full, it is not envisaged that there will be any outstanding amount left to pay at the end of a completed SDRP. Including such provision would be contrary to the policy intent of the Bill and to the broader arguments put forward by noble Lords in the course of this brief discussion, so I hope that the noble Baroness will feel able to withdraw her amendment.
My Lords, I thank all noble Lords who have contributed to this debate, particularly those who have supported Amendment 55. I particularly thank the right reverend Prelate the Bishop of St Albans, who painted a powerful picture of the impact of what we now know was the early stages of the pandemic, as set out in the churches’ Reset the Debt report. He spoke movingly about the increase in demand at food banks and church food pantries, which have been essential in helping so many households through. However, the food bank does not pay the gas bill or the council tax demand.
The right reverend Prelate stressed, as we would expect, the strong moral case for this fair debt write-off—who better to do so? The noble Baroness, Lady McIntosh of Pickering, highlighted the pressure of council tax being felt by so many households. Of course, council tax is funding essential services as budgets are being squeezed by slashed funding from Westminster. I should perhaps declare at this point that I am a vice-president of the Local Government Association. I also thank the noble Baroness for stressing the issue of zero-hours contracts, which affect so many households.
I strongly thank the noble Lord, Lord Davies of Brixton, for making a powerful argument for something much larger than this, as I said at the start, modest proposal; for making the parallel with the bank write-offs of 2007-08; and for calling for consideration of a more wide-ranging debt jubilee. That is why I went to a number of NGOs and campaign groups with a proposal; they came back to me with this, saying that it could and should be practically delivered right now. The noble Lord also made a useful point about the macroeconomic impacts and the sheer drag of debt.
As for the contribution of the noble Baroness, Lady Noakes, I am sure that we will find something to agree on one day, but I thank her for her thoughtful exploration and exposition of the detail. I am not sure, looking at the clock on my computer, that this is the ideal time in the evening to go through her worked example in detail, but I will point out that what is proposed here is not retrospective. In fact, I do not think we even have the power to do such a thing. The price of the debt purchased in the future would reflect the legal change and so would still allow a profit to be made. I also think, given that the secondary debt market is currently paying less than 10 pence in the pound, that her example reflects little understanding of the practical reality of the lives of many in society and in many communities. Perhaps she is thinking more in the range of the market of Greensill Bank, which we have seen collapse today.
I very much agree with what the noble Lord, Lord Stevenson of Balmacara, said on the need for a broader debate on debt, reflecting also what the noble Lord, Lord Davies, said. I do not agree that we should not act now: we are in an emergency situation and, as the discussion on the previous group highlighted, we need to give some certainty and hope. Given the noble Lord’s reflections on how people are appalled and horrified to find themselves in this situation, I thank him for sharing those experiences.
On the remarks of the noble Baroness, Lady Kramer —I will take a look at them in Hansard to ensure that I understood them clearly—there may be some misunderstanding at their heart. Being in debt in the secondary market is not about creating a situation where extra charges can be laid. We are not talking about people going out to borrow money. We are talking about council tax bills, and gas and electricity charges.
The noble Lord, Lord Tunnicliffe, said that we really need broader debates on these issues. Indeed, I said in my introduction that I expect to come back to them many times in the coming years. At the moment, we have had a useful debate; I take on board the noble Lord’s suggestion of a general debate. Perhaps those on the Front Benches, who have much more access to such occasions, would consider originating such a debate. My action at the moment is obvious.
Again, I thank everyone who has contributed here today and everyone who has contributed to this discussion outside this Committee. For the moment, I beg leave to withdraw the amendment, but I reserve the right to consider bringing it back. I invite any noble Lords who are interested in working with me on this matter to approach me.
Amendment 55 withdrawn.
Amendments 56 to 69 not moved.
Clause 34 agreed.
Amendment 70 not moved.
Clauses 35 to 38 agreed.
Clause 39: Appointment of chief executive of FCA
Amendment 71 not moved.
Clause 39 agreed
Clause 40 agreed.
Amendments 72 and 73 not moved.
That concludes the work of the Committee this evening. The Committee stands adjourned. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 7.24 pm.