Lord Altrincham (Con)

My Lords, I am grateful to the noble Baronesses, Lady Kramer and Lady Bowles, for bringing these amendments—and to the right reverend Prelate for his reference to scripture. They raise important questions and will facilitate a useful debate about access to finance, the responsibilities of financial institutions and the right way to support small businesses and underserved communities. I will begin with Amendments 28 and 29 in the name of the noble Baroness, Lady Kramer, and in the case of Amendment 28 also in the name of the right reverend Prelate the Bishop of Manchester. These amendments seek to require the FCA to establish and maintain a framework for assessing and rating banks’ and building societies’ performance in providing access to affordable credit, including for underserved groups. Amendment 29 would go further and require firms falling below a minimum performance threshold to take proportionate remedial action. Access to financial services and appropriate credit is of course extremely important. That is particularly true for small and medium-sized businesses, micro-businesses and those parts of the country where access to finance can be more difficult. If we can improve the flow of capital to productive businesses, we can simulate growth, increase employment, allow firms to develop and generally improve the health of our economy. Many of the most successful businesses in this country began as small enterprises. They require confidence, access to working capital and a banking system willing to support their growth. When credit is unavailable or available only on unreasonable terms, good businesses can be held back, investment delayed and opportunities for employment and innovation lost. However, my concern is with the mechanism proposed. I am not convinced that this can or should be done from a centrally mandated position. Banks and building societies have to make lending decisions on the basis of risk, affordability, regulatory capital, commercial judgment and the circumstances of the borrower. They are complex assessments, not straightforward public policy levers that can simply be pulled from the centre. If banks are going to make these decisions on the basis of their commercial interests, in many cases they will already have done so. Where lending is not happening to the extent that the noble Baroness would like, there is a reason for that. It may relate to risk appetite, capital requirements, information gaps, the lack of security, regulatory burdens, compliance costs or wider economic uncertainty, but the answer, it seems to me, is to work out why that is the case and then address those underlying barriers. The answer should not be to move towards a system in which the Government through statute begin to direct the lending priorities of banks from the centre. Once we go down that road, we risk blurring the line between commercial banking and public policy allocation of credit. That is not a small step. It could have unintended consequences for financial stability, risk management, and ultimately for consumers and taxpayers. This would also send a worrying signal that the UK is a jurisdiction in which private interests are essentially subordinate to political objectives. I support efforts to promote investment into SMEs, micro-businesses and underserved communities, but I do not think the right mechanism is one enforced by the Government in statute through ratings, thresholds and mandatory remedial action. I would therefore be grateful if the Minister could explain what work the Government are doing with banks and financial service providers to improve access to affordable credit, particularly for SMEs and underserved groups. I hope he can reassure the Committee that this work is being done with those organisations rather than over them. I turn briefly to Amendment 30, in the name of the noble Baroness, Lady Bowles, and follow the words of my noble friend Lady Noakes. This amendment would introduce a fiduciary duty requiring firms to act in the best interests of retail customers, including small businesses. It would include duties around avoiding exploitative practices, ensuring suitability and fairness and taking reasonable steps to prevent foreseeable harm. I understand the concern that sits behind this amendment. We all want financial services to treat customers fairly, we all want to prevent exploitative practices and we all want suitable products, clear terms and proper regard to foreseeable harm. Those are important principles. However, I am against imposing a broad fiduciary duty of this kind across regulated financial services. The concept of fiduciary duty carries with it a particular legal character and a potentially very wide set of implications. If applied broadly to all retail customer relationships, including small business relationships, it could create significant uncertainty about the legal obligations of firms, the interaction with existing FCA rules and the extent to which ordinary commercial relationships are being recast as fiduciary ones. We are also concerned that this step could lead to a serious increase in the regulatory and compliance burden, which would fall on firms that are already struggling. Indeed, there is already a substantial framework governing conduct, consumer protection, fairness, suitability and foreseeable harm. The question for the Government and the FCA should be whether that existing framework is operating properly and proportionately, not necessarily whether a new overarching fiduciary duty should be imposed on top of it. My concern is that such a duty could invite litigation, uncertainty and defensive behaviour. It might also make firms more reluctant to serve marginal or higher-risk customers if they fear that any adverse outcome could later be characterised as a breach of fiduciary duty. That would be the opposite of what many of us want to achieve in this group, which is broader and better access to financial services. Indeed, it would make providers and regulators more risk-averse. These amendments raise an important debate about access to credit, the treatment of customers and the role of financial institutions in supporting growth. I support the objective of improving access to finance for SMEs, micro-businesses and underserved communities and hope to hear support for this from the Minister, but we should not seek to achieve that by central direction of lending decisions or imposing broad new legal duties whose consequences would be uncertain and work against the Government’s broad objective of simplifying regulation and reducing burdens.