Lord Pitt-Watson (Lab)

Let me try to address that question. The FCA and the FOS are independent. It is not for the Government to decide what was a correct or a false decision. All that the Government are saying is that the criteria by which the FOS adjudicates should be similar to the rules that practitioners are trying to exercise in the way in which they are working. I think that is just good common sense. I believe there will be a publication coming out shortly from the industry with examples of where the industry may think that the FOS treated it in a way that was inconsistent with the FCA. It is not for me to judge whether that took place. It is for the FOS to judge whether that took place. That may be the reason that I am proving so frustrating in being able to write back properly to the noble Baroness. Amendment 14 would remove Clause 8 from the Bill and add a list of factors that the FOS must take into account when determining what is fair and reasonable in all the circumstances. In Committee, the noble Lord and others raised concerns that Clause 8 might remove the ability of the FOS to consider fairness in the round. That is not the case. The FOS will still make its determination based on all the circumstances of the case. The amendments made to FSMA by Clause 8 do not abolish the fair and reasonable test. That is the final adjudication that will be made by the FOS and, because of the principles of business, treating customers fairly is one of the criteria by which a complaint could be made. Where the relevant FCA rules apply, the Government consider that FOS determinations should be consistent with those rules. Consumers and firms should be able to understand and rely on the FCA rules as providing the standards against which conduct is going to be assessed. I want to be clear: that extends to all the FCA’s rules—I think that addresses my noble friend Lord Davies’s question. That includes the principles for business, the consumer duty and the code of conduct. These are designed to secure high standards of conduct and consumer protection. If a firm fails to meet its obligations under these broad principles-based rules, the FOS may conclude that it should pay redress to the complainant, taking into account this failure and any other relevant information, such as the impact the failure had on the complainant. There is no requirement for a firm to have breached one of the more specific, detailed rules in the FCA’s rulebook. The consumer duty was introduced by the FCA to improve consumer protection across all financial services, and the Government are confident that it sets a high standard of care that firms should provide to their customers. It includes a requirement to act to deliver good outcomes and an expectation that firms will act in good faith, avoid causing foreseeable harm and enable and support retail customers to pursue their financial objectives. The consumer duty, as I pointed out, did not exist when the FOS was established and the fair and reasonable test was introduced. It is right that the framework governing the FOS should be updated to reflect this landmark piece of consumer protection regulation. Without clarification, we are left with a situation where two different bodies are independently making assessments of what standards firms need to meet, and that does not seem like a sensible approach. The reforms to the fair and reasonable test strengthen consistency across the framework. They do not weaken consumer protection. Amendment 13 would remove Clause 7. In Committee, the noble Lord suggested that the referral mechanism would in effect subordinate the FOS to the FCA. That is not the case. The FOS will remain completely independent and responsible for resolving complaints between consumers and financial services firms. The FCA will not determine individual complaints, it will not investigate disputes and it will not direct the outcome of cases. Those functions will remain entirely with the FOS. The amendments to FSMA made by Clause 7 ensure that, where the FOS considers there to be an ambiguity within the FCA rules, the FCA must provide an opinion requested by the FOS. That is entirely consistent with its statutory role as a rule-maker. The FOS will then use that opinion, applying it to the individual circumstances of the case to make a determination. Lastly, some noble Lords expressed concerns about the potential for referrals to lead to delays, including with reference to the FCA’s comment about the potential operational load. The Government recognise the importance of maintaining the FOS’s quick and informal model, but the Government anticipate that only a very small number of cases are going to be referred to the FCA. The vast majority will be resolved without the need for referral. To avoid delays, the timeline for the FCA to respond will be set out in secondary legislation. The FCA and the FOS are already gaining practical experience of operating such a mechanism by trialling arrangements through their memorandum of understanding. The experience gained through this trial has provided valuable lessons for the implementation of the legislative mechanisms. The Government will continue to work closely with the FOS and the FCA ahead of those changes taking effect, preparing them to ensure that the new system works effectively. The memorandum of understanding, by the way, is creating a very small number of referrals from the FOS to the FCA.