Treasury Committee comments on Government and regulator responses to reports on 1) IT failures in financial services, 2) economic crime, and 3) business rates
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In the last few weeks of the previous Parliament, the Treasury
Committee published three reports: IT failures in the financial
services sector (28 October 2019) The impact of business rates on
business (31 October 2019) Economic crime: consumer view (1
November 2019) The Treasury Committee has today published
the Government and regulator responses to the reports on IT
failures and on economic crime (attached). The Government...Request free trial
In the last few weeks of the previous Parliament, the Treasury Committee published three reports:
The Treasury Committee has today published the Government and regulator responses to the reports on IT failures and on economic crime (attached). The Government published its response to the Committee’s business rates report on 27 February 2020 (here).
IT failures in the financial services sector
The Committee’s report made the following conclusions:
As well as the Government’s response, the Committee has also published the response from the regulators (Bank of England, Financial Conduct Authority, and Prudential Regulation Authority). Commenting on the responses, Rt Hon. Mel Stride MP, Chair of the Treasury Committee, said:
“The harm caused to consumers from IT failures in the financial services sector is unacceptable. The previous Committee sought to get to the bottom of what’s causing these failures and how consumers can be better protected.
“The Committee urged regulators to take action to improve the operational resilience of firms in the financial services sector. It recommended that regulators should increase financial sector levies if greater resources are required, ensure individuals and firms are held to account for their role in IT failures, and ensure that firms resolve customer complaints and award compensation quickly.
“HM Treasury has rightly recognised that operational resilience of the financial services sector and the protection of consumers are key priorities. It is considering some of the recommendations made in the Committee’s report.
“The regulators’ response echoed that of the Government, noting that they will take forward the Committee’s recommendations as they develop and implement changes to regulation to ensure adequate operational resilience.
“The Committee will follow up on these responses as part of our regular scrutiny sessions with HM Treasury and the regulators to ensure that all required actions are being taken to protect consumers.”
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The Impact of business rates on business
The Committee’s report made the following conclusions:
Commenting on the Government’s response, which was published last month, Mr Stride said:
“The Treasury Committee in the previous Parliament recognised that the current Business Rates system is broken. It concluded that the Government must examine alternatives.
“In the response that it has published, the Government has rightly listened to the Committee and has announced a fundamental review of Business Rates.
“The Committee also urged HM Treasury to review the complex system of Business Rates reliefs. In its response, HM Treasury has confirmed that it will revise the transitional relief scheme for the 2021 revaluation, and will produce a guide to Business Rates reliefs for local government.
“The Committee will hold the Government’s feet to the fire to ensure that these actions are followed through.”
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Economic crime: consumer view
The Committee’s report made the following conclusions:
Commenting on the Government’s response, Mr Stride said:
“The previous Treasury Committee’s report sought to examine how consumers are affected by economic crime and what can be done to prevent it.
“It made a series of recommendations on the role that Government and regulators have to play in enhancing consumer protection against a wave of criminal activity.
“One such suggestion focussed on supporting victims of fraud who were not to blame for their loss. The Committee recommended that the Contingent Reimbursement Model should be put into legislation and made compulsory as not all banks have voluntarily agreed to it.
“It’s disappointing that the Government made no commitment to investigate this proposal. The Committee will follow up the responses as part of its regular scrutiny of the Government and regulators.”
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Notes to Editors
With bank branches and cash machines disappearing, customers are increasingly expected to rely on online banking services. These services, however, have been significantly disrupted due to IT failures, harming customers left without access to their financial services. While completely uninterrupted access to banking services is not achievable, prolonged IT failures should not be tolerated. The current level and frequency of disruption and consumer harm is unacceptable. The Treasury Committee’s report has made a series of recommendations to overcome this and improve operational resilience, including ensuring accountability of individuals and firms, increasing financial sector levies to ensure that the regulators (which are the Financial Conduct Authority, Prudential Regulation Authority, and Bank of England) are sufficiently staffed, and ensuring that firms resolve complaints and award compensation quickly.
The Government must explain whether it is deliberate that, since Business Rates were introduced in their current form in 1990, the revenue they have generated has outpaced inflation. Throughout this inquiry, the Committee has been told that Business Rates do not fall upon all business equally, for example, they place a far greater cost on physical businesses, such as those on the high street, than those that rely more upon an online presence. Tweaking the current system of Business Rates through an increasingly complex web of reliefs does little to address the negative aspects of this tax and simply demonstrates how broken the system is. Business Rates are an important source of revenue but the Government must explore alternatives to address their negative impacts. The Committee considered alternative options to replace or reform the current system. However, further work is needed to fully model the proposals. The Government should take a deeper look at possible alternatives and prepare a consultation in time for Spring Statement 2020. In the meantime, improvements could be made, including improving reliefs, reducing statutory limits for responding to appeals, and ensuring that the Valuation Office Agency (VOA) is properly resourced.
In the first half of this year, over £600 million was stolen from consumers. Economic crime is a serious and growing problem in the UK. One method to combat it is Confirmation of Payee, which will cross reference payee names with account numbers and sort codes. If financial firms aren’t ready to introduce it by March 2020, the regulators should consider sanctioning them. Another method which should be introduced is a 24-hour delay on all initial payments between accounts, providing time for consumers to consider if they are being defrauded. When money is stolen, the voluntary Contingent Reimbursement Model (CRM) is a welcome step to set out how its signatories should reimburse money lost to consumers by certain types of fraud. It should now be made compulsory, and firms should consider retrospectively reimbursing customers back to 2016. Regulators should define the term ‘grossly negligent’ to provide consistency on whether or not a consumer is reimbursed.
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