Breadcrumbs

House of Lords amends Financial Services Bill to improve social investment regulation

By David Ainsworth, Third Sector Online, 14 November 2012

House of Lords

House of Lords

The changes, campaigned for by the Social Investment Forum, will allow the successors to the Financial Services Authority to regulate social finance differently

The House of Lords has passed amendments to the Financial Services Bill that are intended to improve the regulation of social investment.

The changes to the bill, which will establish the remit of the Financial Conduct Authority and the Prudential Regulation Authority, the successors to the Financial Services Authority, will give the new regulators freedom to regulate social finance differently.

One amendment required the FCA to have regard to "the differing expectations that consumers may have" – potentially allowing it to behave differently when regulating investments where there is an expectation of a social as well as a financial return.

Another amendment required both the FCA and the PRA to have regard to "differences in the nature of, and objectives of, businesses", which would similarly allow different regulation of businesses that offer both social and financial return.

A third amendment requires the regulator to have regard to the ease with which consumers access services, especially those in areas of deprivation, which should support finance initiatives such as credit unions and community development finance institutions.

The amendments were strongly campaigned for by the Social Investment Forum – a collective of social investment intermediaries led by Social Enterprise UK, and involving Big Society Capital and the Social Investment Business.

Lord Newby, a Liberal Democrat peer and deputy chief whip, said during a debate in the House of Lords on Monday that the amendments did not mention social investment, but this was because the government wanted them "to apply across the board rather than exclusively to social investment".

"We want the regulator to take a measured and targeted approach to regulating both alternative and existing firms and business models and protecting their consumers, and we do not want this to be limited to social investment alone," he said. "For example, there are other innovative sectors that would benefit from this, such as peer-to-peer lending."

Lord Hodgson of Astley Abbots, who has campaigned for the amendments, said in response that the government had "got it - they understand the importance of creating a regime that, while recognising the need for proper consumer protection, will provide an appropriate regulatory structure, which in turn will not impede the proper and measured development of social investment. I hope that the government will keep up the pressure and continue to stress this policy clearly and strongly to a wider audience."

He said that wider audience consisted primarily of staff in the regulator itself, and professions such as bankers, accountants and lawyers.

A statement released by the Social Investment Forum, the network for social investment finance intermediaries, said that while the amendments were general in nature, they did "recognise the distinct regulatory treatment needed to aid the growth of the UK social investment market" and "set the tone" for the correct regulation of social investment.

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