Financial Guidance and Claims Bill [HL] — House of Lords, 2017-10-31
Topic: Domestic Commerce
George Young (Conservative, Centre-right): My Lords, I am grateful to my noble friend Lord Holmes for moving the amendment. He mentioned that he was a member of my flock. He displays exactly the right independence of thought tempered by loyalty to the party that any Whip could wish for. I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord McKenzie, and my noble friend Lady Altmann for speaking to the amendment, which seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interest of consumers and managing conflicts of interest fairly. Noble Lords also raised the broader issue of duty of care, which is not mentioned specifically in the amendment but is obviously relevant. As noble Lords may remember, my noble friend tabled a similar amendment in Committee Aside from the provisions in general consumer law, the FCA already applies rules on firms conducting regulated activities in relation to their dealings with consumers. First, the FCA’s rules set out in Principles for Businesses require firms to conduct their business, "with due skill, care and diligence", and to, "pay due regard to the interests of … customers and treat them fairly" Principle 8 sets out: "A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client" That accurately mirrors proposed new subsection 1(b) in the amendment, so there is a congruity of objective there Secondly, the rules on clients’ best interests require a firm to act in its client’s best interests across most regulated activities. The client’s best interests rule states: "A firm must act honestly, fairly and professionally in accordance with the best interests of its client" Again, those are exactly the words used in my noble friend’s amendment, so there is no disagreement over objective Thirdly and finally, a number of FCA rules contain an obligation on firms to take "reasonable care" for certain activities. For example, one of the Insurance: Conduct of Business rules states: "A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment" Those rules in the FCA Handbook are supplemented by more specific rules in various FCA sourcebooks. The FCA will be able to apply its existing Principles for Businesses, which I have just quoted, to claims management companies and to make any other sector-specific rules that may be necessary, under its existing objectives. The FCA supervises against these rules and other provisions and, where necessary, can take enforcement action against firms to secure appropriate consumer protection The FCA is of the view that its current regulatory toolkit is sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management services and how they fit together as an overall regime. In doing this, the FCA will take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. It will also consult publicly on its proposed rules Turning to the broader issue of duty of care, the noble Lord, Lord McKenzie, asked whether there were any pearls. I think the oyster is still at work so the pearls are not available for display this evening. The words "duty of care" mean different things to different people and the precise scope and content of any proposed duty of care are uncertain. The impact of a duty of care obligation needs to be fully considered, as do the cost, complexity and time that might be involved in customers seeking to bring firms to court as a result of a duty of care obligation I was asked to say something about the timescale of the work on this. A duty of care could have an effect on many of the FCA’s provisions in its handbook, including the need to replace or remove some. The FCA intends to undertake a comprehensive review of the handbook post Brexit. The FCA believes that it would be best to include duty of care in that review, particularly as the FCA’s ability to change its rules in some areas will depend on the relationship between the EU and UK post withdrawal. Many of the FCA’s current rules are based on EU legislation. Once the relationship between the EU and the UK following withdrawal is clear, there will be more clarity around the degree of discretion that the FCA has to amend its rules In addition, the FCA is currently identifying the necessary changes to its rules to ensure that they continue to operate as a coherent set of rules following EU withdrawal. This work is being done in parallel with the work across government to review directly applicable EU legislation. It is a significant, complex and time-critical exercise that must be progressed immediately. If noble Lords have any concerns about the timing of the discussion paper, that is primarily a matter for the FCA. Returning to the amendment, it is not necessary to include regulatory principles in the Bill because of the provisions the FCA already has. For that reason, I would request—or suggest—to my noble friend Lord Holmes that he withdraw his amendment.