My Lords, I welcome the noble Baroness, Lady Swinburne, who has stepped in at the last minute today. We send our wishes that the noble Baroness, Lady Vere, recovers from her illness swiftly.
We were supportive of the Hill recommendations for changes to the prospectus regime, so we do not oppose this SI, but I will express a fair dose of anxiety. I want to register a concern at the power shift away from Parliament to the FCA. At present, the FCA acts with little accountability or oversight. The House will have a new committee, the financial services regulators committee, which I suspect will need to be very diligent as it looks at the FCA’s actions in this area. The FCA will now set the rules for admission to trading on regulated markets, on MTFs operating primary markets and what will now be classed as public offer platforms. Only the broad concept of a prospectus will remain in legislation. I ask the Minister to explain the additional resources that will be given to the FCA to police what are, frankly, difficult and complex waters.
I also ask the Minister to explain the compensation mechanism where there is misleading or incorrect information in a prospectus or in any other required
document. I am particularly keen to know what happens if a company with a false prospectus or alternative document falls into bankruptcy, and whether the FCA or a court could remove investors’ rights of private redress, if a scheme of arrangement is implemented. I am deriving this from concerns that exist around the Woodford investors and the Link Fund scheme, which will overtake that organisation and appears to threaten the investors’ rights of recourse to either the Financial Ombudsman Service or the Financial Services Compensation Scheme. I am not quite sure how all this works around investors through these various platforms, but I am concerned that, somewhere, the compensation must be protected and not compromised. Perhaps the Minister will help me understand that part of the process.
Can the Minister expand a little more on the protections in place for offers of securities made through the renamed public offer platforms? As she said, they are essentially crowdfunding platforms. Typically, crowdfunding platforms have been caveat emptor, and I am trying to understand what protections will now be in place, especially as the requirement for a prospectus for offers over £8 million is being erased. In fact, the pool of companies that can use crowdfunding is now dramatically increased and involves many much bigger players. I fully recognise that we need to find a way to encourage investment in both start-ups and scale-ups if we are to grow the UK economy, but nothing will kill a market faster than a series of scams, especially when the victims turn out to be ordinary people. It is primarily ordinary people who make use of crowdfunding platforms—people who have not been in a position to either understand or evaluate the risks that they are taking.
I notice—the Minister referred to this—that mini-bond issues will now be required to use the public offer platforms. Frankly, that very fact illustrates the FCA’s propensity for closing the stable doors long after the horse has bolted. I understand that this may deal with the mini-bond problem, but what about the problems we do not yet recognise? How will they be captured? Under this new regime, will new scams now have far more room for manoeuvre?
This statutory instrument depends heavily on the FCA’s commitment to consumer protection, but it has been noticeable that the FCA rejected the introduction of a duty of care and opted for a customer duty. Framed largely as a box-ticking exercise, it is less comprehensive than a duty of care and, most importantly, the consumer duty arrangement permits no right of private action, which is perhaps the primary protection that most consumers have when a scam acts on them and they are victimised. Do the Government expect the FCA to apply to protection in this market the same customer duty approach, which is narrow, constrained and very much cuts off a right of private action?
I realise that the Government are determined to persuade ordinary people to take far more risk with their money, and these changes are part of that process. I have no problem with people taking risk, where they have sufficient funds for their own needs and sufficient expertise to understand the risk that they are undertaking. But, frankly, as I read through this SI, I find very little that looks as though it is directed at people with both resources and expertise; it seems to encompass people
who may well have neither. We all know that, when they are first marketed, risky ventures look extremely good. It is only after time that people find out the pitfalls.
I am trying to get from the Government some sense of whether, when we pass this SI, we will lose control over the protections that will be in place. Will we have any way to challenge the adequacy of those protections? How will we be assured that, given the much greater flexibility and opportunity being offered, we will not lose necessary transparency and protection?
4.30 pm