Bank of England and Financial Services Bill [Lords] — House of Commons, 2016-04-19
Topic: Domestic Commerce
Harriett Mary Morison Baldwin (Conservative, Centre-right): Let me start with new clause 9, tabled by my hon. Friend the Member for Broxbourne (Mr Walker) and others, which addresses the important issue of politically exposed persons. My colleague is an expert not only in oratory but in parliamentary procedure and I commend him for his use of both in this example. The Chancellor and I are very concerned about this issue, as my hon. Friend knows, and we are grateful to my hon. Friend for his assiduous work in collating examples that he has heard from colleagues and from the banking sector It is absolutely right that the "know your customer" requirements should be tailored to the risk posed, and I reassure the House that we are very much on the side of colleagues in this regard. I therefore welcome the amendment and the strong message it sends to banks as they implement these rules. The new clause also addresses guidance, and I fully agree that guidance will help the banks to take an effective, proportionate and commensurate approach to politically exposed persons. The Government intend to implement new money laundering regulations by June next year at the latest and this amendment will come into force at that time. We will consult on the new regulations this year As well as accepting the new clause, I want to take the opportunity to update the House on other action that we have taken to resolve these issues on behalf of Members since my hon. Friend had his Adjournment debate on 20 January. On 1 March we had a meeting with the banks that I organised with the Minister for Security from the Home Office, and on 23 March the Chancellor wrote to the banks to explain our views. We will continue to work with the banks, with the FCA and with others to ensure that a sensible and proportionate approach prevails I have also written not once but twice in a "Dear colleague" letter to all Members and Peers giving colleagues the name of a senior designated person to contact at each major bank should they or a family member encounter any problems. To conclude on this new clause, I thank my hon. Friend for bringing the issue to the House so that I can give this reassurance about the attention that the Government are paying to this challenge. New clause 10, on debt management plans, was tabled by my hon. Friend the Member for South West Devon (Mr Streeter), and I thank him for his collaborative approach in tabling the amendment and the ongoing commitment shown by him and his all-party group to supporting all households in problem debt. The Government share his concerns about the potential for detriment to occur to consumers participating in some debt management plans and I recognise the importance of protecting this vulnerable group of consumers. The Government’s focus has been on comprehensively reforming the regulation of the sector to ensure that financial services firms are on the side of people who work hard, do the right thing and get on in life. Responsibility for regulating debt management firms, like that for all other consumer credit firms, transferred from the OFT to the FCA on 1 April 2014. The FCA has made addressing the risk posed to consumers by non-compliant debt management firms the highest priority, alongside payday lending Indeed, debt management firms were in the first group of firms to require full authorisation, and the FCA is thoroughly scrutinising firms’ business models and practices. Firms that do not meet the FCA’s threshold conditions will not be able to continue to offer debt management plans. Removing non-compliant debt management firms from the market will fundamentally reduce the risk of harm to consumers and will ensure that consumers have access to sustainable repayment plans as a result of providers acting in the best interest of consumers The hon. Member for Makerfield (Yvonne Fovargue) raised the question of the handover of clients with debt management plans whose firms have not been authorised by the FCA. That is an issue to which the FCA is playing close attention, to try to ensure that data protection issues are taken into account and to accommodate the disheartening position of someone with one of those plans whose firm fails to be authorised, for whom a better alternative must be found On the issue raised by the amendment—how debt management plans are funded—charities such as StepChange and Christians Against Poverty already successfully negotiate voluntary funding agreements with creditors through the fair share model. Introducing changes to this funding arrangement, such as mandatory contributions, may have unintended consequences, disrupting a successful funding arrangement for charities. Consequently, setting the level of this share is not supported by the not-for-profit sector. Similarly, not-for-profit providers are concerned that formalising fair share contributions may change charities’ relationship with creditors and compromise their independence. The perception of charities by their clients as impartial advocates is essential to encouraging households in problem debt to come forward for support With the FCA’s authorisation process ongoing, and the anticipated changes in the market that that will bring, now is not the right time to introduce changes to the way debt management plans are funded. Any consideration of changes to funding arrangements should take place when the shape of the debt management market is known. The best setting for looking at the full landscape of debt advice funding will be in the context of the public financial guidance review, which includes a commitment for the Government to monitor the impact on the FCA authorisation process. If necessary, the funding arrangements for debt advice will be reviewed, and the Government may consider broadening the funding base to include other sectors, to ensure that consumers continue to get the help they need. I trust that this assures my hon. Friend the Member for South West Devon that the Government continue to consider it a priority to help those facing problem debt, and that he will not press his amendment to the vote I shall deal now with amendments 1, 2, 8, 9, and 10, which would apply the reverse burden of proof to senior managers in the banking sector or in all authorised financial services firms. We reject both sets of amendments, above all because the senior managers and certification regime with a statutory duty of responsibility will be an extremely effective tool for holding senior managers to account The duty of responsibility will extend to all senior managers. The discredited approved persons regime will be replaced. Firms must identify exactly what their senior managers are responsible for. Senior managers will not be able to wriggle off the hook because they did not know what was being done in the areas for which they are responsible. The reverse burden of proof is not needed to deliver what we want to deliver—a culture change Lord Turnbull, who was a Cross-Bench member of the Parliamentary Commission on Banking Standards, said: "In future, senior managers will have to take responsibility for what goes on in the teams for which they are responsible and for the actions of the people whom they have appointed and thereby given accreditation." He went on to say: "I still fail to see why the reverse burden of proof is the only way to get people to understand that. . . I believe that the proposal now in the Bill— that is, the duty of responsibility— is superior."—[Official Report, House of Lords, 15 December 2015; Vol. 767, c. 2026-28.] In written evidence to the Public Bill Committee, the Building Societies Association stated: "The lack of individual accountability to date is mainly the result of a failure to allocate responsibilities in firms’ corporate governance frameworks. Because this deficiency will be fully addressed by the new strengthening accountability in banking rules (through responsibility maps, individual statements of responsibility, handover arrangements), the reversed burden of proof is unfair and is redundant"— not my words, but those of the Building Societies Association Today’s debate is about what happens when things go wrong and a firm breaks a regulatory requirement. Under the reverse burden of proof, the senior manager responsible for the area of the firm where the breach occurred would have to prove that they had taken reasonable steps to prevent it. The Bill will impose a statutory duty of responsibility on senior managers. Senior managers would still be required to take reasonable steps to prevent breaches of regulations in the areas of the firm’s business for which they are responsible. However, when such a breach occurs, it will fall to the regulators to show that the responsible senior manager had failed to take such steps. This duty will be extended with the senior managers and certification regime to senior managers in all authorised financial services firms, ensuring that they are held to the same high standards as those in banks.