Financial Services Bill — House of Lords, 2021-04-28
Topic: Domestic Commerce
John Eatwell (Non-Affiliated, Unknown): My Lords, while we on this side of the House were hoping for action rather than further consultation, and we remain somewhat puzzled as to exactly what further the FCA has to learn that was not learned in the consultation of 2018 when it published a discussion paper entitled with some prescience, A Duty of Care and Potential Alternative Approaches. None the less, despite our desire for action and puzzlement in that respect, we welcome the tenor of the Government’s amendment In particular, I congratulate the Government on the clear acknowledgement that real harm is done today to millions of users of financial services by this famous asymmetrical relationship in financial transactions and that harm is done to those excluded from access to financial services. As evidence of this acknowledgement, I refer to the remarks just made by the noble Earl, Lord Howe, and also the remarks by the Economic Secretary to the Treasury, referred to by the noble Baroness, Lady Kramer. For example, Mr Glen said: "The Government agree with the concerns that … this harm may in part stem from an asymmetry of information between financial services firms and their customers. The risk is that many firms may seek to exploit this asymmetry. The FCA is well aware of how informational asymmetries and behavioural biases can influence consumer behaviour, and is committed to ensuring that these issues are addressed where it considers that they may result in harm".—[Official Report, Commons, 26/4/21; cols. 83-84.] All I can say to that is: "Quite right too" I am particularly pleased that in new subsection 2(b) in their amendment, the Government refer to the need to extend the duty of care to "all consumers". I urge the FCA to ignore the suggestion that a duty of care might be limited to "particular classes of consumer". That way lies unnecessary complexity and the potential for error and injustice. Any inclusive list of "particular classes" is also a list that excludes. Confining the duty of care to particular classes would also eliminate the peculiar advantages of principles-based regulation, namely the flexibility of the principle in an industry of which persistent innovation is a defining characteristic. This is an advantage not to be sacrificed lightly In the debates on this issue—including those in the other place—not only Mr Glen, but the noble Earl, Lord Howe, the noble Baroness, Lady Kramer, and several noble Lords have referred to the prevalence of asymmetric information in retail financial services. As we know, this renders markets inefficient. In retail financial markets, asymmetric information results in excessive risk being loaded on to consumers. A duty of care will rebalance risk by shifting the balance of risk from the consumer back towards the provider, which in an efficient market is where it should be However, the FCA must be alert to a potential consequence. This may well result in some financial services providers deciding to withdraw from the provision of services where previously they happily dumped the risk on consumers. This increase in exclusion would be contrary to the intent and spirit of the Government amendment. We should therefore emphasise that having the status of an authorised person in financial services is a privilege, and with that privilege comes responsibility. Indeed, as Mr Glen remarked in the other place, "authorised persons owe a duty of care to consumers."—[Official Report, Commons, 26/4/21; col. 84.] He is quite right. It is the responsibility of financial institutions providing financial services not to withdraw but, on the contrary, to play their full part in tackling financial exclusion. I am sure that the FCA will address this issue as it draws up its new general rules on the level of care.