Peers have started to debate the Financial Guidance and Claims Bill, during its second reading in the Lords.
This bill will combine three financial advice bodies into one, aiming to ensure that people across the UK are able to seek the help and advice they need to manage their finances. Tax practitioners should be braced for many amendments to this bill. The aims of the bill are clear but many aspects of it were unclear to Peers. Most of the second reading was taken up explaining the Bill rather than debating it. Most speakers welcomed the changes.
In general, the Bill will establish a new statutory body, accountable to Parliament, with responsibility for coordinating the provision of debt advice, money guidance, and pension guidance. It will also transfer the regulation of claims management services to the Financial Conduct Authority, and transfer complaints-handling responsibility to the Financial Ombudsman Service. The single financial guidance body will not fund regulated financial advice, with the exception of debt advice, but would signpost consumers to other providers to ensure that consumers’ guidance and advice needs could be met. The body will be set up in the bill as an arm’s-length body, accountable to Parliament, and sponsored by the Department for Work and Pensions (DWP).
Parliamentary Under-Secretary of State at DWP Baroness Buscombe said the measures have received support from stakeholders in industry, from charities and from consumer groups that clearly expressed a wish to see the body focus on ‘filling gaps’ in the current financial guidance provision. The Government has had three reviews into the provision of public financial guidance across the UK since 2015.
The minister was keen to explain that debt advice comes with a personal recommendation and action plan and is a regulated activity in contrast to financial guidance which is not regulated and more generic. This is something the new single body will have to manage.
The new body will provide information and guidance on all matters relating to private pensions and information on money matters, including budgeting and saving, insurance, bank accounts, protection from fraud and scams, and planning for retirement, peers were told. It will also fund free-to-client debt advice for people in England with problem debt. Its strategic function requires the body to work closely with others in the financial industry, the devolved authorities and the public and voluntary sectors. The bill makes provision for the funding of debt advice to be delivered by each of the devolved authorities.
She said any continued delay will cause uncertainty for the three services involved and the 250 or so staff who work for them. The Government has considered ‘very carefully’ the 22 recommendations by the Lords’ Select Committee on Tackling Financial Exclusion and will publish a full response shortly.
There will be a transfer of claims management regulation from the Ministry of Justice to the FCA to ‘tackle a range of conduct issues within the market, ensuring a tougher regulatory framework and increased individual accountability’. “We know that 76 per cent of the public are not confident that CMCs [claims management companies] tell the truth to their customers”.
On CMCs Lord Hunt of Wirral said measures to restrict the charges they can levy are long overdue and ensure that charges are capped in every area where CMCs are active.
If the debt piece is called advice, then it has to take account of the pension piece, and once it is doing that, the pension element will have to be advice too, not just guidance, noted Baroness Altmann. She wants consideration given to amending the word used by the single financial guidance body, so that it is debt guidance, not debt advice. She will table an amendment to bring back the abandoned legislation to ban cold-calling on pensions.
Lord Holmes of Richmond strongly urged the Government to consider all innovative and technological solutions for information, advice and guidance so they are clear for those who are currently digitally excluded and offline. He is concerned that the Bill says very little about the funding of this new organisation and felt more thought must be given to the potential for it to collecting broader information than financial capacity, such as market intelligence gathering and sharing.
Party spokesman Lord McKenzie of Luton said the Bill gives no specifics on ‘delivery channels’, which will have to be designed by the new body, but his expectation is that these will include a customer-facing website, a telephone service and some face-to-face support. How is it expected that arrangements will allow appropriate consumers who are not currently effectively reached to be catered for? Do we expect the new single body to handle increased volumes? he asked. He said its strategic function to support and co-ordinate a national strategy could be strengthened to a ‘develop and deliver’ function. McKenzie is concerned that a number of statutory functions of the Money Advice Service (MAS) are not currently included in the new plan but did not state them.
The Government should be bolder by not restricting the provision of financial education for children and young people to non-governmental programmes. He hopes people will have access to their pensions dashboard by 2019 and this will help them when getting advice.
Current regulation of CMCs ‘has been characterised by poor value for money, information imbalances, nuisance calls and texts and the progression of speculative and fraudulent claims’. McKenzie accepted the public interest in having an effective claims management market operating in the interests of consumers. Labour supports the proposition that CMCs be subject to a rigorous reauthorisation process, and that there be a ‘senior manager regime of personal accountability’. The Bill enables the FCA to introduce a cap on charges, he added.
Baroness Drake said signposting will improve public access and address the barriers put in place by some providers reluctant to see their customers access guidance, for fear it increases the risk that they will not buy a product or service from them. On a potential pension dashboard, she said the UK should follow Australia in Sweden where the public have access to one clean version of a dashboard not associated with any provider with a product suite.
Lord Stevenson of Balmacara, once chair of StepChange and current member of the Financial Inclusion Commission, said there is a case for trying to see whether it is worth having designated Ministers or champions on financial exclusion in other departments such as the Treasury, Health and DDCMS. He added that the plan to keep the levy system, as used for MAS, and also tax companies, to pay for the new single advice service may seem unfair to firms.
Lib Dem speakers
Lord Sharkey complained of some surprising gaps and some rather vague and ambiguous drafting in the bill. He said eight million people in the UK are over indebted, according to an MAS report published this year. Over half the clients seen by MAS-funded debt advice projects had a diagnosed mental health condition, he said. He added that three to six months after getting advice, 65 per cent of those with debts are currently repaying them or have already repaid them in full. He is unhappy that the Bill does not address cold calls selling fee-paying debt management services. He wanted the introduction of a pause or breathing space before debt recovery takes place. The current MAS business plan is already in the public domain. He wants applications to the FCA for funding and the FCA’s rationale for arriving at an amount, and for its allocation to be in the public domain.
Lord Kirkwood of Kirkhope spoke up for the ‘breathing space idea’ to manage debt which he said is already in place in Scotland under a statutory debt arrangement scheme and ‘it works very well’.
Baroness Greengross said no one really understands the difference between the existing bodies at the moment. The Earl of Kinnoull, who spent 25 years in the non-life insurance industry, asked Peers to be mindful of the need for simplicity. He urged the FCA to rely on industry gossip a bit more to let it know where it should direct its energies, particularly in the area of CMCs.
The full debate can be read here.