The Financial Services Bill – still in the House of Lords – has moved from committee stage to report stage – and I am continuing to champion the issues and put forward the amendments that I raised at committee stage. On Monday, 19 April 2021, several of these amendments (regarding open finance, digital infrastructure and digital payments) will be debated together – in a kind of digital – or fintech – group. One of the most important subjects is around the question of digital ID.
I put forward an amendment on digital ID during committee stage last month and am putting it forward again. The amendment requires the Treasury, within six months of the passage of the bill to publish the government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial services sector.
Further, my amendment states that such ID must be scalable, flexible and inclusive, capable of deployment and take-up across the entire UK, and capable of adapting to change – not least in new technologies such as quantum computing. By inclusive I mean not just inclusion concerning protected characteristics as set out in equality legislation, but wider – a guarantee that a digital ID will enable and empower everyone across the piece.
A significant barrier to the successful adoption of digital ID is the, completely understandable, public antipathy to the idea of ‘ID cards’ and fears related to security, privacy and trust. This is a long standing national sensitivity and a public engagement campaign will be key in the successful roll out and adoption of digital ID for individuals and entities.
This new report stage amendment
Insert the following new Clause—
(1) Within six months of the passing of this Act, the Treasury must publish the Government’s plans for the development and deployment of a distributed digital identification (“Digital ID”) for individuals and corporate entities in the financial sector.
(2) The Digital IDs should be— (a) scalable, (b) flexible, and (c) inclusive.
(3) The Treasury must also undertake a public engagement campaign around Digital IDs to raise awareness and participation in the process.
(4) In this section— “Digital ID” means a set of attributes related to an entity, as according to the International Organization for Standardization and International Electrotechnical Commission framework 24760-1; “flexible” means capable of resilience and workable as technologies develop and evolve; “inclusive” means capable of including all entities and individuals, not least, in respect of their protected characteristics as set out in the Equality Act 2010; “scalable” means capable of national deployment.”Amendment 30, Lord Holmes of Richmond, Report Stage Day 2, Financial Services Bill, House of Lords, 19 April 2021
Another amendment regarding the modernisation of UK law to allow financial market infrastructure to process digital instruments was again put forward at committee stage. At that point the amendment called for the Secretary of State to report to parliament on the legislative and regulatory changes required to enable such modernisation. In its reincarnation at report stage the amendment has evolved slightly and now calls for the legislative and regulatory changes required for modernisation to be made by Treasury through regulations. The amendment in full is:
Insert the following new Clause—
“Modernisation of UK law to allow financial market infrastructure to process digital instruments
(1) Within three months of the passing of this Act, the Treasury must by regulations make the legislative and regulatory changes required to enable the modernisation of UK law to allow the UK’s financial market infrastructure to process digital instruments.
(2) In making regulations under subsection (1), the Treasury must— (a) consider the need to dematerialise securities at the same rate as the European Union; (b) consider the need to review insolvency of companies regulated by the PRA or FCA, central securities depositories regulation and the settlement finality directive to allow digital technology; (c) consider how the trading of tokenised securities (such as company shares using a blockchain based register) can be facilitated on investment exchanges and multilateral trading facilities; and (d) consider whether and how digital technology in post-trade processes should be embraced. (3) Regulations under this section are subject to the affirmative procedure.”Amendment 32, Lord Holmes of Richmond, Report Stage Day 2, Financial Services Bill, House of Lords, 19 April 2021
Another amendment making a return appearance regards a mandatory regime for open finance. It is clear what a huge success open banking has been and I believe we need, urgently, to extend this into open finance. It could cover various areas, not least mortgages and insurance, across the whole financial services sector. Currently, we have what I can best describe as Payment Services Directive 2 (PSD2) suboptimalities. If we truly had an open finance regime, we as individuals could have our data in our hands—we decide, we choose. If we do it, it will be a boon for fintech, a boon for individuals and a boon for the UK. The full text of the amendment is
Insert the following new Clause
“Mandatory regime for open finance
(1) The Treasury must, within 3 months of the date of the passing of this Act, lay before both Houses of Parliament draft regulations requiring that providers of financial services data must make that data available to appropriately licensed third parties on a non-discriminatory basis.
(2) Regulations under subsection (1) are subject to the affirmative procedure.”Amendment 31, Lord Holmes of Richmond, Report Stage Day 2, Financial Services Bill, House of Lords, 19 April 2021
Finally I will put forward an amendment that would require the Government to conduct a review into access to digital payments.
Insert the following new Clause—
“Access to digital payments review
(1) Within one month of the passing of this Act, the Government must conduct a review into access to digital payments.
(2) The review must include, but is not limited to, consideration of the accessibility and usability of digital payments for— (a) people with protected characteristics, as defined in the Equality Act 2010, (b) people from different socioeconomic groups, and (c) people from each nation and region of the United Kingdom.
(3) The review must also investigate the link between digital exclusion and financial exclusion.”Amendment 37E, Lord Holmes of Richmond, Report Stage Day 2, Financial Services Bill, House of Lords, 19 April 2021
I am a passionate advocate for technology and in particular the incredible opportunities presented by fintech. But in championing this technology and truly making the most of these opportunities we must ensure the benefits are for all. Inclusion is the golden thread.
More about Digital ID in Finextra, The Westminster Series, the digital must become the day to day