The Bishop of St Albans tabled his amendment 136 to the Financial Services Bill in Grand Committee on 3rd March 2021, and spoke in support of a further amendment on debt financing:
The Lord Bishop of St Albans [V]: 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.
Baroness Kramer (LD): 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.
Baroness Penn (Con): 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.
The Lord Bishop of St Albans [V]: 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.
The Church of England in Parliament 
You must be logged in to post a comment.