Compensation Bill [HL]

moved Amendment No. 102:"Page 10, line 26, at end insert—" ““   (1)   Regulations shall make, or shall require the Regulator to make, provision about the standards required of an authorised person who handles customer money. (2)   Regulations under sub-paragraph (1) shall in particular provide that— (a)   customer money shall be kept in a separate account in the name of the customer; (b)   each customer’s money shall be used only for that customer’s matter; (c)   no payment or withdrawal (other than a payment to the customer) may be made from that account without the express written authority of the customer; (d)   proper accounting systems must be established and maintained with proper internal controls over those systems; and (e)   a named individual shall be responsible for those accounting systems.”” The noble Lord said: This is, in my mind, a very important safeguard concerning handling customers’ money, and it merits serious consideration. The amendment seeks to insert after paragraph 12 requirements for closer regulation of those who handle customers’ money. There are obvious protections for those who deal with firms that are regulated, for example, by the Financial Services Authority or the Law Society. The same protections should be in place when it comes to approved persons who are permitted to handle customers’ money. In practice, the only reason for claims management companies seeking to handle customers’ money is to enable them to deduct their charges at source. That serves only to fuel a climate in which the price of those services remains uncontrolled. The amendment also seeks to make an individual in each company responsible for the accounting systems to avoid any potential for fraud. Again, that seeks to move us closer to the FSA model rather than the CSC model. The accounts of law firms are open to special scrutiny in that regard, so perhaps the Law Society might usefully be consulted on the best way forward for bringing rogue claims management companies to heel. I do not apologise for referring again to the modus operandi of the FSA—in particular, its approved person regime. It is no accident that this scheme applies to an individual person in a particular position within a particular management structure within a particular firm, and that seems to me an excellent model. FSA rules specify certain ““controlled functions”” within firms regulated by them that may be carried out only by persons approved by them to do so. Persons approved by them for that purpose—““approved persons””—are subject to specific requirements. The controlled functions fall into two main groups: those which involve the exercise of ““significant influence”” over the authorised firm; and those which involve dealing with customers and/or dealing with customers’ money or property. Approval is not a ““qualification”” that can be transferable from post to post. If an individual moves from one controlled function to another, or from one firm to another, FSA approval must be obtained afresh. To gain and keep approval, a person must be fit and proper. The considerations include: honesty, integrity and reputation; competence and capability; and financial soundness. The FSA rules contain a code of conduct which sets out at a high level the standards which the FSA requires approved persons to observe. Approved persons are liable to discipline by the FSA for breaches of the code of conduct or for involvement in breaches by regulated firms of FSA rules. Penalties include censure, withdrawal of approval, fines and prohibition from working anywhere in the financial services sector, or part of it, for a defined period or for life. I thought it might be helpful to set that out as I detect that the Committee is quite attracted by seeking a way of applying the approved person regime to claims management companies. It puts individuals in a spotlight where they are accountable and where they can be made accountable. It is a very good system, particularly when it comes to handling customers’ money. I am not going to go into all the abuses, because the Committee has heard from me on several occasions and there is a great wealth of evidence out there as to the abuses that have taken place. The amendment would go some way to ensuring that those abuses stop. I beg to move.