 Welcome to the 26th meeting in 2022 of the Delegated Powers and Law Reform Committee. I would like to remind everyone present to switch their mobile phones to silent. I would also like to acknowledge the apologies from Oliver Mundell who couldn't be with the committee today. The first item of business is to decide whether to take items 7, 8 and 9 in private. As a committee content to take these items in private. Moving to agenda item number 2 today, we are continuing to take evidence on the movable transactions at Scotland Bill across two panels. The first panel is online. The first panel will welcome Colin Borland, the director of the Devolved Nations Federation of Small Businesses, joining us also as Merca Sheepjack, head of working capital and trade products at NatWest. Good morning panel. First of all, can I remind both attendees, don't worry about attending to make us aware that you want to speak because we'll bring you in automatically. I'm going to start the questions to the panel number 1. This is my first law to the FSB. One of the things that has come up in the evidence so far has been the issue of cash flow, and that certainly can be an issue for all businesses, but particularly small businesses. Can you provide just a bit more background information to that as an issue, Mr Borland? Particularly, I think it's fair to say that certainly from 2008 the financial and trading conditions for the small business sector will have been extremely difficult in Scotland and also across the UK, and clearly we're also in a current situation which is clearly financially challenging also. Yes, thanks very much. I mean absolutely right, and I think we've made the point in the written evidence, but with the maxim that it's not a lack of profitability that kills businesses but a lack of cash, and so from cash flow was often interrupted by things like the late payment for all sums that's already owed to them. That's a particular deal alongside the problem. The policy memorandum quotes I think are a digital evidence to the Scottish law commission that the time it said people have thousands of small businesses in Scotland before each year because their own voices were being unpaid, excuse me, and more recently it's true to say that it's becoming worse. I mean our latest small business correspondence index, which was published last week, shows that over half of all small businesses in Scotland are continuing to be beset by late payments, and a third have seen an increase in over the last three months. I think I've written evidence also says that over one in ten small firms, which are 12%, say that late payment is now threatening the viability of the business. Now that's against a backdrop. As we know, I would detain the committee by telling you, there's the stuff you already know, but we know that prices are going up, inputs are going up, then the news which has been made about are beginning to fall, that obviously we're seeing profits, if there's any profit left for the business, is going completely. So there really is an alliance on shorter-term solutions that help cash flow. I mean if it would be helpful, I could just run through a very quick snapshot of how businesses end to fund their operations at the moment. So, if you look back, I mean I've taken this one to the first march 2020, and that's simply because that's before all the Covid emergency solutions come in, which is before billion pounds of Scotland takes off quite a chunk of businesses debt. But if you look at the overall picture, first march, about over half, 56% of the slow business owners had some form of debt, 46% of that half were using their business bank account overdraft, 38% relying on business credit cards, 30% personal credit cards. So the top three there are all pretty flexible forms of finance, typically to help with the daily work across the business, and the most common forms of finance acquired with small businesses in recent years, leaving the Covid-borne society, which we've got all the rules, overdraft facilities, credit cards and asset finance. What that strongly suggests to me is that in the market as a whole, flexibility in financing is the most important to small business borrowers, which I think makes this legislation, but in one hand could be seen as quite dry and technical, actually could be potentially quite significant, because if it succeeds in its aims of broadening access to that sort of financial solution, is that helpful? That's certainly worse helpful, thank you. So are you aware of any particular difficulties for the small business sector accessing invoice financing in Scotland? In a soul, what impact does this actually have? Well, anything that's factoring and raising money by certain debt obligations, I think it's got sort of the stigma that it's had in the past, but it does remain a relatively expensive form of finance. I was just having a look yesterday at some things and some guide suggesting that you can see APR highs at about 48%. Of course, you're accepting less than face value for the invoice, but at the same time, you're also outsourcing your credit control, which can be a costly intent to do and drag on business. I think that the industry will probably be a better place for me to have a view of whether there are particular issues in Scotland. However, if you can bring down the cost of administering invoice financing, you can hopefully drive more competition in the market and get the prices for your business. Obviously, that is one of the stated aims of the proposed legislation, is to reduce some of the burden, some of the time, some of the processes and all of the everything that goes round about. If it succeeds in doing that in the other step of the course, there's definitely an opportunity there to get costs down and make it a better option for more people. Questions for Mirka. From a lender's perspective, how does the current law in Scotland impact on your lending options? Good morning. Well, Scots regime currently presents particular challenges, which in some instances definitely present significant obstacles to provision of finance and in other cases significantly adds to costs, including workarounds. So that means it reduces the quantities of finance that would be otherwise available under alternative regimes. I may also follow on the example used by Collin. Collin is absolutely right, overdrafts are most common financing instruments for businesses to strive to manage their working capital. But the purpose of this bill is looking at security effectively and how we perfect security rights against an asset. We talked about invoice finance. Invoice finance is not one term. There are multiple forms of invoice finance. The most common one are actually currently in the United Kingdom across all the countries comprising the United Kingdom is invoice discounting, not factoring. An invoice discounting is not disclosed to the debtors. Factoring, which is going significantly in decline, indeed is more expensive because factoring also constitutes credit control elements, which means a lender takes the duties of chasing debt on behalf of our customers. As not waste, we recently exited factoring product because our customers were moving and switching on to invoice discounting. So if you think about factoring in itself, then current regime doesn't necessarily press too many challenges because factoring facilities are fully disclosed to the debtors anyway. So the debtor intimation happens under factoring agreements because we are stepping in to chase the debt on behalf of our customers. Penziw will always have more pricey factoring facility in business discounting. As I said, the industry is moving away from providing factoring because the market demand is vanishing for factoring. Because companies are using, for example, various news accounting software companies that chase debt on their behalf. As we can see the rise of invoice discounting that is pushing factoring out. And current regime in Scots law presents challenges to invoice discounting because invoice discounting actually in many instances is cheaper than overdraft facilities, but it's also undisclosed to the debtors. When a business tries to raise money through their invoice discounting facility, which operates on a whole ledger, it's just sales ledger balance that is notified to the lender, the lender gives them the availability against the sales ledger balance. We don't look at any invoices, it's quite straightforward, fast, simple and factoring. But under Scots law I have to have that intimation to the debtors. Under the current regime I would have to notify debtors in order to basically pass the title of the debt to the bank. So what do we do now? We have an expensive work around when we create a trust language and a trust mechanism with our customers. Now this is the problem because it's costly, it definitely needs to involve third party lawyers for drafting some of those agreements and help our customers to really understand what it means, what this trust mechanism means to them. And also for our lender's perspective it presents huge challenges because it's never been tested. So we're kind of operating it in order to provide the finance. But what it means, we tend to provide invoice financing facilities, i.e. invoice discounting to slightly bigger businesses as opposed to the smaller ones because of the cost challenges and because of the untested nature of this work around that gives us challenges. So that is the, hence the proposed changes to the law on assignation in Scotland will be definitely welcome from an invoice finance perspective. It doesn't only go as far as, it goes way beyond invoice finance. Supply trade finance facilities are also very important and we've seen them on the rise when we have companies that have concentrations to big blue chip debtors regularly. For example, I currently in an English law rely on the receivables purchase agreement, which allows me to take security for current and in future receivables. That ability and the current Scots law is not competent. So we cannot really take an assignment of all present and future receivables. It's not valid. This bill changes that, which again makes it far easier to execute because currently I have to create that corroborative assignation and transfer of the receivable into trust on every notification of debt. So again, it's having heavy for businesses. I pause there in case there are any questions before we move to the changes to the law of pledges unless you want to hear the impact of that as well. If you can do that at the moment, that would be helpful. Thank you. No, no problem. So in terms of the, so in terms of the law of pledges, this is used mostly for what we will call fixed assets planning machinery, for example, or any other assets who lender can evaluate and provide financing to businesses. So currently under Scots law, the concept of chapter mortgages is not recognized. So obtaining a pledge and possession of the assets is very impractical and does limit companies access to finance. So in order to provide financing against planning machinery, for example, which again an English law constitutes a fixed assets, I can effectively only get into a floating charge position, which means I have to put a number of reserves in place, which again squeezes the availability of funding business could raise in order to satisfy the working capital requirements. So the more I have to put in order to ensure that at the exit, the value of the assets versus the funding of the assets is saved from a risk perspective, the less the money is available to businesses. What the new proposal in the bill creates is that ability to almost have effective fixed charge against planning machinery. So that's really the key impact in terms of businesses access to finance. Of course we need to think about the administrative ways of managing those registers because they need to be accessible and effective. But both changes to the law on assignations, as well as the law of pledges, will definitely increase access to finance and ability to do it at a lower cost. Okay, no, thank you for that. I know certainly the issue of floating charges will come up in questioning shortly. So on that final point regarding the access to finance. So just for clarification then, do you see opportunities from this bill to regarding the invoice financing to actually open up new sources of funding for small businesses? Absolutely, absolutely. Through this, the access to financing for small businesses will be far better. They don't need to worry then about the workarounds and the trust mechanism, which for some of them is hard to understand. Hence, they decide not to proceed. And as I said, because the inverse discounting, which is entirely confidential, i.e. the debtors are not aware of our involvement, it again allows them to access those facilities without any need to intimate debtors. Okay, no, thank you. And one final question from me at the moment is regarding just the larger business sector in Scotland. Are you aware of any advantages to the larger businesses from the reforms to invoice financing proposed in the bill? I know you've touched a lot of the couple of points there, but... The cost for them is there as well. So for them, again, we might need to think we are able to perfect our security interest far easier, which means we can provide better advance rates against the sales ledger balances for those bigger businesses. Absolutely. Okay, no, thank you. Because we control what can prevent the security. If you have a large business, a large business is small as well, but the large business seasonality is very, very visible and it impacts the operating profit generation. Most businesses are seasonal actually. So if I have huge volatility in seasonality, I'll be very cautious. What is the maximum advance rate I can put against sales ledger balances? Because under current regime, I kind of limited decision making powers as to when I can perfect my security. And that means I'm cautious. With this new bill, I will effectively have fixed charge rights. So other than Crown preference that ranks ahead of me, I am ranking ahead of IP, the insolvency practitioner, and can perfect my security at the most optimal point in time. That preserves the value for ourselves as well as the business. To just put a hand over to Bill, just something that you said there. So with the bill and the proposals, would you foresee that more business transactions would then actually take place in Scotland as compared to, as we have heard already in evidence, some transactions actually then taking place under English law? In terms of more in Scotland versus more in English or more in Scotland character? More in Scotland as compared to the current. We have been told that some transactions have taken place under English law because it's been ages to deal with and less work around. I didn't fully understand the question, yes, absolutely. In some instances, the business deliberately takes a decision to have the facility under English law as opposed to Scottish law in order to have that access to find it. So, yes, you would see businesses registering facilities under Scottish law, yes. Bill Kidd. Thank you, you've covered a wide range there, and thank you very much for doing so. Basically, what I'm hoping to find out is that supporters of reforms have stated that they're likely to make access to credit cheaper. Do you agree that this will actually be the case in practice or is this just a sort of a smokescreen for new legislation? If I think about it from that way's perspective, if I look at the extra legal cost associated with workarounds, because that's the still cost, then yes, elimination of the needs of workarounds presents lower legal charges for customers, which means access to credit is cheaper, for sure. So, on that basis, and I think you did talk about this, in your view, businesses in England and other countries have access to a wider range of finance options than we have in Scotland at present. Will this bill open up the options? As you mentioned earlier, people are taking the advantage of running things under English law. Do you think that that would mean that people would be able to concentrate their options here in Scotland? Yes, I believe so. We still provide financing under the Scots law for some of the bigger companies in Scotland, as well as the middle ones. But even they are facing challenges in terms of availability of finance. Let's start to answer the question of the practical case study. Let's look at the law of pledges in the context of asset-based lending when we do leverage planning machinery to provide financing. You may have, in terms of characteristics, identical businesses when operating in Scotland, when operating in England. Because under the English law, I have very, as I said, other than Crown preference, nothing else runs against me. So, if I'm giving the asset, I can give a full evaluation of the money available to the customer against that asset in England. In Scotland, so let's say the asset is worth £100,000 and I can give £60,000 because we obviously evaluate those assets, not as a going concern, but as an accelerated sale. Because I don't need to put any other reserves that could be required and are required. And the Scottish law, because I don't effectively have fixed charge here, I have a concept of floating charge, which means there are other creditors that may rank against it ahead of me. That availability against 100 came my go as low as 20. So, it means that the company in Scotland, whilst they have exactly the same asset, cannot benefit from the same amount of financing because of all those extra things that have to be considered from a lender's perspective before we give them the money. Then you need to then think it yourself, but what is the point of me even raising the money that way? And a lot of businesses decide it's not worth it. Now, it also puts a lot of businesses at the risk of unnecessary costs when the answer might still be no because it won't be commercially viable. Of course, we as a lender, we avoid that so we understand the market so we will know straight away from the value of the asset whether it has any legs or not. But there are a lot of providers who may just take the benefit and still charge a business, a valuation charge just to give them the answer that your asset is worth very little for the purpose of financing. So you would also eliminate that unnecessary cost evaluations which often result in a long answer. OK, well that's very helpful and thank you very much indeed for that. Just before we move on, Colin Borland, do you want to come in on any of the points that have just been raised? Very quickly, I think that Marker gave a really neat summary of where we are from the industry point of view, which I'm usually interested in here. I mean, I think, yes, should this make access to credit cheaper, then yes, if it goes the way we want it to go, then yes it will because as Marker has outlined, the workarounds do seem disproportionate particularly when you think about the amount of credit. That might be an issue. Another one of the big advantages of this for us is that you're not losing access to business assets under the statutory pledge. So, for example, an often quoted example, there's a fuel of a van that's worth £10,000 and you want to raise £500 against it that it's also completely impractical to lose fuel. So lose use of that vehicle until the loader's been paid. So I think that's going to certainly open up a lot more options and I think that the more people that we can encourage into the market and to try to exploit those new market opportunities, which we need to try a bit of competition, I don't want to try to get back down. And also just like to make a point about the floating charge and some of the limitations around that as well, because just again it's a point to be in the mind that that can all be granted by incorporated debtors like companies, limited liability partnerships, et cetera. So that means that it's out of reach of sole traders and partnerships and they account for about £50,000 of the £172,000 registered small businesses in Scotland and almost all of the £165,000 unregistered businesses. So it's going to be quite important that the strategy pledge is going to be applicable to unincorporated businesses because I think that's where a lot of those acute short-term cash flow issues arise where solutions like this might be the most useful. Okay, no, thank you. So just before we move on to the next round of questioning, I'm just going to suspend briefly because there's a minor technical issue here in the room, so we will come back very shortly. Thank you. So I'm going to hand over to Jeremy Balfour. Good morning and again thank you very much for coming. Maybe I could just ask one question in the normal that we've heard already and maybe start with Colin and then if others want to come in that would be fine. Colin, obviously small businesses, individuals, partnerships, can't at the moment under Scots law grant floating charges. Now I think those are a bit of a blunt instrument and that perhaps not used as much as they were previously, but as we look at this, is it something that your members are saying they would like that opportunity to have floating charge, to be able to take a floating charge over their assets or is there something that will replace that? I would think that given the limitations around the floating charges, I think it would be better if we would replace it with something like this because it looks on the face of it, incredibly straightforward, and it looks like to be providing the sorts of finance that typically businesses in that set of circumstances are telling us that they need. So yes, my understanding would be to go with the latter. I can just ask a question to Merca. In regard to customers you're dealing with, who are partnerships or individuals, is there any appetite for floating charges to be allowed to be granted by them? No, I think we have not seen that, and I think it's on a guess, as Colin said, there are challenges associated with floating charges for small businesses. If you can allow the assets to be utilised by the business but allow the funders to have the quasi fixed charge against their assets, that's better for all parties involved. Thank you. I wonder if I could just move on to another area, and again, maybe I will, both of you, want to take this. At the moment, the bill doesn't deal with shares and other assets such as that because the Government has a view that it doesn't have legal competency to grant that. Have you a view on that and do you think the bill should be extended to be able to deal with shares as well? Probably, I understand the challenges in terms of the charges of the shares. As a lender, we tend not to take those because only in very complex structured finance transactions. If we are thinking about small businesses or medium-sized businesses, taking charges against businesses' shares is not something that lenders want to do these days. From that perspective, I don't think that makes any difference in how businesses would access finance. We have not seen the demand of businesses saying, hey, I want to stake up my company for you. It might have different implications to investors, and their view might be different to those that of the banks, of course, because they do obviously take equity stakes in businesses in order to propel the growth agenda. So, probably that question is better directed at investors as opposed to traditional lenders. The other area that I just wanted to cover is in regard to the new register and how it will actually work in practice. I mean, are you satisfied that the register set out in the bill to provide the information needed both for lenders and for those who are granting it, and do you have any suggestions how it could be improved? I mean, from our point of view, we don't have any firm views on that. I think it's just going to be one of these ones where if the overall package makes this option more attractive than the alternatives, then people will go for it and people will use it and will deliver the bill's aims. But in terms of how best to design that, how to look at any appropriate fee structure or what information should be recorded, I'm not sure. Well, we certainly don't have any firm views on it at this stage, but if there's any specific questions you think might have particular relevance to small businesses, I'm more than happy to take them away and get the tasteful soundings. From my perspective, as I alluded to earlier, it's about the register being effective and accessible. Accessible also means from a cost perspective, of course. I think there has to be a balanced track between the amount of information that would be useful to have in such research results when searching the registers and administration involved in ensuring accurate information is included. Definitely would probably suggest an approach with limited mandatory data fields on registers themselves. Therefore, the functionality to allow clicking through to other documents without further information could be possible. That would be my suggestion. The limited number of mandatory fields that are in those registers. As time of adoption, I think of a time, the registers will become the preferred form of registering security interests. Just one follow-up again to both of your myths. At the moment, the bill will suggest that it's a voluntary update, so register of statutory pledges will be done. So when it's paid off, it will not necessarily automatically show up. Someone will have to do that. Do you think that's realistic within business? Do you think people will actually do that? Is it one of these things that we will end up with just lists and lists of pledges which actually have been paid off but have never actually been taken off the register? It's a fair challenge. I can comment from an English lost site as well. Currently, I think it's statutory for us to remove the pledges when the loan has been paid in terms of security. The banks notoriously were slow in removing those security interests. I think either way, financial institutions should have their own code of contact on this and really promptly remove any security interests from facilities that have been repaid. But you can make it statutory. It doesn't necessarily have the effect on the work because we're seeing in English law the challenges of removing security interests in time demand. So that's probably a way of answering the question. It's making statutory one harm and definitely will help small businesses to show they're free of any pledges, but whether the legal construct will have a desired effect, that's yet to be seen. I think if you make it as easy as possible to do it, that will drive traffic, make people do it. I'm fairly sure of my borrowers point of view as well. If you have, say, £500 outstanding on your van, which is the centre for your work, the day that's paid off, you would be pretty keen to have that removed because you might want to raise other financial issues and demonstrate that you're not carrying any charges of it. So I think there's quite a strong motivation factor there from the borrower and those circumstances to undo it so, again, that we don't have to make it statutory with everything that then goes with that. Thank you, and thank you, Cymru. Thanks very much to both of you for coming along this morning. I just wanted to touch on one area that we've been discussing with other witnesses that's maybe not exactly in your purview, but it would be interesting to get your insights nonetheless. The main area of controversy in relation to the bill is how it should apply to consumers. The committee has heard concerns from witnesses in the last couple of weeks about the risks that the bill could facilitate at a high cost level. The lending market is basically virtual pawn-broken for consumers using the statutory pledge. Comparisons were made to logbook loans in England. So just to, you know, whilst bearing in mind there's no fixed definition of a consumer and consumer legislation, the definitions in both the Consumer Credit Act of 1974 and the Consumer Scotland Act 2020 cover sole traders. This is because when buying goods and services outside the area of expertise, sole traders can be at risk from the same sort of information imbalance as individual citizens. So bearing in mind that issue of additional protections for sole traders, do you think that there is a risk or a concern that reforms proposed in the bill will open up a high-crossed lending market for consumers and sole traders with loans secured on both household items and items that might be business critical for a sole trader? And do you have any views on how likely this might be? I think Paul, you're absolutely right to find that out. It was one of the things that I remember years and years ago when we were speaking to the Scottish Law Commission about this. It was one of the things that we had said because of course it's not the standard of the issues about protections for sole traders. We were talking about making sure that individuals would be able to access the remedies that were put forward. And that was the first thing that crossed us about how do you then stop someone seeing the people who speak to them outside the house because of raising money, I guess, and things like that. Now, I said it's not my area of expertise. It's not something that we've looked at any good detail. At the time, as I would call the conversation, they had thought this in quite a lot of detail. And they seemed to think that there would be a lot of sort of statutory protections going into the and safeguards going into the bill because I think, you know, we all know what we're trying to avoid. You know, as you say, we're trying to avoid making this a, you know, a whole shark's charge at the same time not excluding those very small micro businesses who might be quite difficult to determine from the individual consumer. Because, again, one of the things about small business finance is how much you have found up in your own personal finances. How many people are using things like personal credit cards and, you know, another personal finance option to keep the road, you know, to keep the business going. And also especially at micro stage and the start-up stage, you know, what is your household asset? What is the, what is a business asset? So it's a really, you know, it's a tricky one to reflect what happens, I suppose, in that sort of day-to-day world. And yet I capture that in statutory text. But I think what we, you know, from our point of view, we need to be clear that we can limit the, you know, one of the big advantages of this is that you're going to open up a form of finance to unincorporated bodies. And I think that's, that is definitely a major price. So that would be the one thing we're very keen to see. I agree with Colin. It's a fair challenge for sure. However, we've already mentioned the Consumer Credit Act protections will stand. And again, it's not my strong enough expertise. But also we know very shortly we are going to have consumer duty and consumer duty also provides further protections. So I think the overall legislative framework to protect businesses like small traders, with both the CCA as well the consumer duty, I think will make it harder for people willing to exploit this. Welcome changing to the law. Thanks for that. I guess just to be clear, would you be particularly concerned if consumers were excluded from the ambit of the bill? From my perspective, I am a business lender. I operate in a business that I would not have an opinion. So I think I'm not aware of Nat West plans to expand this level of financing through these means. We have other options of providing consumer finance, which so far proven successful. But I think that's as far as I can call with my commentary on this. Colin, do you have any views? I'm a thing frozen. I'm not thinking about 30 seconds into his answer. We're just saying, would you be having any particular concerns if consumers were excluded from the ambit of the bill? To find consumers, I suppose, is difficult for us because so much of particularly at that very small stage, at that early stage, how we would define that, I suppose, that's the issue. But at the same time, I have absolutely no interest in making things easier for loan sharks or for operators. Particularly at the current time, where we know how hard-pressed finances are and people will be looking at every option, no matter how extreme, to keep things together as we try to get out of the inflation crisis. We would have a strong concern if it looked like this would be a way to limit access to business finance to the smallest firms because that's, at the end of the day, the way in our interest in this bill comes from. Just taking that on about the issue, but limiting finance to small businesses, small firms, but even considering sole traders, sole traders are excluded from consumer protections contained in the bill. Do you agree with that approach? I know that Mark has suggested that there were other legislative remedies there, protections that could come in, but I'm just interested to get both of your thoughts on that exclusion from consumer protections in the bill. I think the consumer duty, again, will help that, and that's exactly the reason why the regulators are pushing for consumer duty with the sole traders in the heart of that legislative change. Because Culling is right, sole traders should not be excluded from access to finance, but equally they should be under the protection of certain remedies that are available under the CCA, but I do know that consumer duty goes beyond that and provides those remedies in the future. There is one scenario, though, that the bill would create that might be problematic, and I just wanted to get your thoughts on that, that a lender would not need a court order to seize items pledged by a sole trader or a small business in the event that they missed payments on their loan. Would you be happy that greater protection, which might have, obviously, consequentially come with a higher interest rate, is not needed? It's a bit of a balance to strike, I suppose. That's a really good question, Paul, but it's really interesting. It's probably the one I would need to take away and consider in a bit more detail, just exactly about how it would, what you say, that practical example, how that works and how the various rights and protections fit together in that one, but I'm happy to explore that in more detail, if you think that would be helpful. That would be appreciated, and if there's any proposals around protections that might be appropriate or proportionate in terms of when a seizure could take place, for example, that would be helpful. Murthay, have you any thoughts on that? From a mainstream bank perspective, not just that West, we would never do that, but you don't need to ask yourself, what about any independent providers? Would that create an, I don't really have an answer, I only going to come back to you at the challenge, would that create an opportunity for some third party companies acting as aids to those independent third party providers with diseases of assets? We could ask yourself that challenge without any protection. Potentially, is the parallel market financing market that could exist alongside mainstream financing? That's definitely a challenge because we've seen it in the past, things like that without protections sometimes do get exploited. That's really helpful and particularly what the best practice would be from mainstream lending institutions and what we could design to ensure that nothing can be used to outflank that, that would be really helpful. If there's any further thoughts on how... We already have evidential standards. We have to provide reasons as to why we're providing facilities to customers that they do receive value for money. All those things already are part of the regulatory regime and that's absolutely the case. Some of the legislation is not as far-reaching to necessarily independent providers, but FCA is definitely trying to combat that as well in terms of financial conduct of those independent providers and I think again the consumer duty is looking to address that across the spectrum of all the providers. What are you going to have some time lapse is the question that will allow any meaningful time for exploitation? Probably not, but is that definitely something for consideration? Okay, well thanks very much for that. I appreciate your thoughts. Thank you. So Colin, if you can come back to the committee before next Tuesday please on that particular question from Paul, that would be very helpful because we've got the minister in front of us next Tuesday. Yeah, thank you. I've just got a couple of the final questions. So the financial memorandum suggests that fees for using our registers will be in the range of between £10 and £80. Do you think that's the sort of level that will actually encourage the usage and this is for the registers? Colin? I don't have any views. I think it's one of these ones where if we get... I think if you look at the overall package, the overall package is cheaper in the round so in terms of the actual pounds that you're spending and the time that you're investing, then yes, I think businesses will see this as a reasonable option and if it's not, it won't. So I suppose that the challenge for registers in Scotland will be just to keep it on review, make sure they have the right balance between cover and the cost, but not discouraging use in terms of where that line should be drawn. No, I've got the very opinion. OK, thank you. Miaka? Just please remind me what was the upper range, 10 to 18 or 80? 80, 80. 80, OK. Well, again, comparison and Colin is right, what is that in the overall scheme of the cost of the facility? By memory, charges to companies' houses are flagrater than that because the last one that I remember was around £150, and that did not prevent any business from happening or usage. So probably the range that you're talking about is realistic and should not be a hindrance to usage of the registers. OK, no, thank you. My final question is for yourself, Miaka, and I'm not expecting an answer at this point, and you might want to come back to the committee at some point. So, obviously, this is a building through the parliamentary process, and if the bill were to pass and the roll-out then takes place in the future, would Nat West consider having, even for a short period of time, to assist with the roll-out? Would Nat West consider having a favourable set of lending conditions and financial conditions to people and organisations in Scotland to assist with the roll-out of the legislation? Perhaps I can answer it this way. I think the short answer is yes, but the way we would do that is in a compliant way, as we currently do through all the other financial conduct rules and codes of conduct that we play by. So in that situation, if we had a Scottish client, we would absolutely made it a rule and compulsive rule that such customer has to be aware of recent changes in legislation and the customer has a personality as to how they wish to proceed. Absolutely. Whenever we've done that, any other, you know, this has changed the legislation, but we have a good comparison into, for example, skins available alongside traditional lending. And we always take the duty to show the customer full range of options available to them, and that's how we conduct our business. So in that sense, absolutely yes. Okay, thank you. Any other questions? No, thank you for that. Okay, so with that panel, thank you very much for your time this morning and also for your written submissions. So with that, I will briefly suspend so we can change to the next panel. So once again, thank you very much Colin Bowland and Mierka Sipchak. And for our second panel, can I welcome Jennifer Henderson, the keeper of the registers of Scotland, who is accompanied by John Hodge, the policy lead for RMT and Cat Hague, the product lead for RMT of the registers of Scotland. And can I once again remind our witnesses not to worry about switching on the microphones during the session as these are controlled by broadcasting. And if you would like to come in to any of the questions, please just indicate raise your hand. That would be helpful, thank you. So with that, I'll just start off some of the initial questions. So the financial memorandum suggests that the registers will be operational by mid 2024 at a cost of around £8.2 million. Are you still on track to deliver that? Thank you for having us today, convener. Yes, we are, but I think one of the things we would notice clearly the timing of the passing of the legislation and the timing of the regulations, our experience of developing other registers, a gap of a year from knowing exactly what we've got to deliver to it being fully operational is what we need. So we're on track with the timetable as we currently understand it for the price that we're currently working to. Okay. And what consultation have you done with potential users to ensure that the registers actually meet their needs? So I'm going to hand to my colleague Cat, who's leading on the product development, who will talk about our user experience work. Thank you, yep. So we've done a broad range of user research over our discovery and alpha periods and I can talk about what those are as well. We've spoken with a range of solicitors and lenders who we have identified as being our top users. We also are aware and we are working to the assumption at the moment currently that individuals, so citizens are included within the scope of the legislation. And it's our intention in the next stage of our project, which is our beta phase, to do some research with private individuals, with citizens as well. We've undertaken a number of individual interviews with users, as well as prototype sessions. So that is basically showing users what we've built, testing some concepts and different ideas with them and getting feedback on that and then iterating the prototypes and amending them based on the feedback that we've received. So today we've spoken with around 50 different users across that kind of range, not only solicitors and lenders, but we've also spoken with academics and we've spoken with industry experts, valuation firms for things like assets as well. And we've also done a bit of work with the LOC mission and the Law Society of Scotland as well. No, thank you for that. Certainly with the dialogue and the consultations that you've had with the wide range of organisation individuals, have you been able to get a clearer picture of the likely demand for registering the assignations and the statutory pledges on the registers? Yeah, so I think it's in terms of the user estimates, it's similar to what the Bria in 2017 had suggested. Obviously we've been doing a bit of work. We've had to do a bit of work in terms of, I suppose, making people aware of this legislation as well. We've been speaking with financial counterparts in England as well and just making them aware that this legislation is coming. So I think that as the awareness grows as well, it will increase the scope of what people can do under this legislation. As that grows, I think there will be higher demand for using the registers. So we might not get the sort of estimated figures in the first year from day one, but I think that will grow over time. That certainly seems to be borne out in our research. OK, thank you. Certainly this committee has heard from the money advice sector regarding the issue of the searches of the registers to actually be free. Is that feasible within the current budget or could a two-tier system be operational, i.e. for those who are money advice experts for them to have access free, but potential adults to them? I think overall it's obviously a matter for ministers and for Parliament how they want to set the fee structure. From a registers of Scotland point of view, we would expect to be able to cover our costs for running the register from the totality of fees charged. So if there was to be a different fee structure, if certain people would have free access to search and so on, we would just have to take that into account in the overall funding for the registers. And ultimately, if there's a gap in our funding between what it costs us to deliver the registers and the fees we have coming in from the registers, it would be for the Scottish Government to cover that gap in funding however they saw fit. But we don't have an explicit opinion about exactly how the fee structure should be set up other than the point about covering our costs. OK, thank you. Bill Kidd. Thank you very much and thank you for being here today. So there are some stakeholders who have made it known to the, in the committee's call for views, that there should be links between the registers in the bill and yourself and companies house. And you obviously know about that because it's only nodding there, thank you. So not this would be an order to avoid companies having to register for financial arrangements twice. Are you actually considering this at all or would it, because some of those who would have to register would not wish to actually have to register with more than one body because that's a complication for them. Would you really be considering this? So I think there's two parts to that. I mean, my colleague John, I'll briefly get him to speak to the current provisions so there isn't currently a provision to require us to put the link in and John can expand a little bit on that. Technically, Cap can come in on could we do it, yes we could if there was provision in the bill that required us to put the links in, we could do that but at the moment we're not considering it because it's not something that's in the bill. I don't know, John, whether you just want to briefly expand on that linkage question. Yes, sure. Good morning. Yes, it's certainly something that we would like to do but I think it would require an amendment to the Companies Act which is not a devolved act and so it requires an order under that act. Our understanding is that the bill team within the Scottish Government have made contact with UK Government on this issue but as yet no information is forthcoming but certainly as the keeper says it's something we'd like to do and if it happens we can accommodate it. Cap, would you just like to briefly explain technically how we'd do it? Yes, of course. We're also looking to build APIs which are an application programme and interface into our service which basically allows two software systems to talk to each other so it technically is possible but what I would say is that we haven't, as Jennifer said, we've not scoped this work out yet because it's not part of the bill as it currently stands so we haven't scoped out that work and we haven't had those conversations but we do have a good relationship. So what is something that we could investigate? Thank you for that indeed. Can I just ask why? I think that all three of you have said that it's something that you would wish to consider. Can you ask what benefits it would actually bring to Register Scotland to actually have this linkage, please? So, I mean, I think, as you've alluded to, I mean, the primary benefit would be that people who would need to register twice wouldn't need to do that. They'd be able to register once and copy to cross and I guess from a Register Scotland point of view that removes the possibility of people introducing errors by actually if they have to register twice. They don't quite get it right in both places and then we end up having to put time and effort into making corrections so I think our view would be if there is a possibility of people registering something once and that is something that's going to be made provision for and, as John says, can be done legally, it makes the quality of the data better overall. That makes a lot of sense. Thank you very much. Just before I hand over to Jeremy, I assume there wouldn't be any issues regarding data protection or GDPR, also the two separate organisations if there were to be the input once and then it's then transferred over to the other. So, John, again, we wish to come in, but where we do have, where we take data from other organisations which we do in other places, we have appropriate data sharing arrangements in place and either end knows what's provided and their customers know what's provided and that all gets sorted out as part of that, but John, do you want to add it to that? Exactly that. The order that would be made under the Companies Act would cover that and, as Jennifer says, agreements and memorands of understanding would cover the specific detail. Thank you. Jeremy. Thank you for giving me a minute and good morning to the panel. You have heard in my first panel I was asking about the voluntary nature around the register, so when a pledge has been discharged will it happen or will it just build up more and more? Do you think the voluntary approach will work or would you want to see some statutory limitation put on it? I'll start, but I'll get John to come in on the technical detail. The way the legislation is currently drafted, the removal of a pledge is voluntary. Either the lender would request to remove it or much more likely, in my opinion, the person who's given the pledge would want it taken off because they wouldn't want to record it, which is actually in common with how standard securities mortgages worked. When you've discharged your mortgage on your property, you request to have it removed from the register and the lender signs up and we register that deed. We certainly could do that, but that is a voluntary arrangement there as well. John, do you want to come in with how we would see the legislation would need to be amended to make provision if it were to be compulsory? That is an issue that the Law Commission wrestled with, the balance between having a register that has utility and not being a clog on business, I think was the phrase that the Law Commission used by requiring discharges to be registered every time a pledge is expired. The bill as it stands would mean that pledges would last in perpetuity. We have no view on what the position should be, but what we intend to do is monitor how the register matures over time and whether the number of entries on that register starts to affect the searchability of the register and the usability. We'd feed that back, but ultimately it'll be a decision for ministers and government to make based on the balance between the utility of the registers and ease of doing business. It's several decades before I practised law, but when I was practising you only discharged the stand security or you only really put the document forward when you were selling my property. So often you would pay off your mortgage, but it would be years later you would bring forward the discharge. I suppose my fears is picking up John's final point is that we end up with a register which is so large it's almost impossible to find anything. Is that a danger? It could be a danger and I think, I mean there's obviously provision in the legislation for ministers to make secondary legislation that would introduce changes to how updates on the statutory pledges would need to be made. And one of the things we could certainly supply as part of that is the data about how the registers being used, how many pledges are on it that we think might have expired and things like that. So ministers could decide whether they would want to bring in a compulsory element to, at later stage, if they don't do it by amending the bill at the current point. Okay, thank you. Just one other final point, Scottish ministers also have a power to set the duration of registration for statutory pledges. The fact of advocates in their submission have suggested that asking courage to set the timescale when the register would be a better approach. Is this something that you could facilitate if the legislation changed? John John, to come in. Yes, absolutely. Jennifer mentioned that the bill as it stands allows ministers to make regulations which with time expire and also to facilitate renewal applications and both of those are certainly something that we could accommodate in the system. The system will be lazily automated and if there was a time period and even if that was set at the point of application, we could ensure that those were removed on an automated basis. Thank you, convener. Okay, thank you. And Paul. Thank you, convener, and thanks to everyone for coming along today. We just wanted to cover also privacy and consumer issues around protection of information. Obviously, the registers will put personal information such as the name and address of an individual asignoral pledge provider into the public domain. The asignation record will also contain the asignation document, contain the details of the asignation and in some cases, this may enable individual customers to be identified and indeed anyone can search the registers if they pay the required fee. So I think the government has acknowledged that there are privacy issues paragraph 107 of the policy memorandum suggests that Scottish ministers may consider limiting some search options or keeping certain information confidential in particular context to protect privacy. And also separately in evidence we've had consumer money advice organizations have highlighted the concerns that the registers may contain information which is prejudicial to the interests of consumers. For example, there are frequent disputes between individuals and creditors about the accuracy of information held by credit reference agencies. Advice Direct Scotland raised concerns that the information in the registers could be used to make taking debt enforcement action easier or could be used by credit reference agencies in a way that had a negative impact on consumers. ADS also raised concerns that the registers could contain out-of-date information about loans taken out by an individual and it called for clear and effective processes to correct errors and settled disputes. It would be possible to use the process set out in sections 96 and 97 of the bill to force a correction of the registered statutory pleasure server if a creditor disagreed that the dispute would go to court and there is no process set out in the bill for making corrections to the register of assignations. So just to touch on these issues that have been raised by evidence we've heard so far from other contributors, the registers will contain significant amounts of personal information. So what measures are being planned to protect individuals' privacy? So obviously overall the sort of balance between the public interest in having a register and the privacy of the individuals who are on that register is a matter for ministers and where they want to set exactly what goes on the register, what's searchable and so on. I would say the way we're building the registers and Cat would be very happy to expand. We are protecting people's information in the sense that people will only be able to access the register in the prescribed manner, they'll only be able to search against the things that are prescribed, they'll only get returns on the information that matches their search criteria. So that ability, someone isn't going in and scrolling through the entire register and able to see everything in it and certainly from a cyber security point of view we will be building in excellent protections to make sure that that information is held securely and so on. But we will also be building a register that meets the requirements as in the bill in terms of what information is provided to people when they search, what they can search against and obviously if between now and when the bill is passed there are adjustments to that. Cat and her team can accommodate changing the search fields, that sort of thing so that matches exactly what we're supposed to be supplying. I guess it's an emphasis on my role as registrar is an administrative role in relation to setting up and delivering these registers, making the information in them publicly available as prescribed in the act, nothing more and nothing less. I suppose a similar example might be the DVLA's database in how insurance companies might be able to check that for people who look at points in their licence and declare that in their insurance. But I suppose that that's maybe a similar concern that Advice Direct Scotland has raised about information in the registers being used in a way that could be detrimental to individuals, not necessarily with their knowledge, for example debt enforcement by credit reference agencies. Is this something that you've considered and how access to the registers can be controlled so that individuals can have sovereign to over it? We've considered it in the sense that we're building a register that meets the requirements of the bill as currently written. That allows anyone who wishes to go in and search the register. There's no limitation at the moment on the types of organisation who can search. I would say it's back to the question about a fee for searching, one of the elements of having a fee for searching is it does just discourage people spending their days going in, looking up the names of the neighbours in their street or whatever to find out about their financial affairs. Our overall view is we're delivering what's currently in the bill. John, did you want to come in any more on the policy aspects of this? Yes, I can just touch upon a couple of the points that you mentioned that the bill makes some mitigations around privacy concerns. Obviously registration as a policy solution by definition involves publicity, so those mitigations are important. In terms of searching, you mentioned date of birth as one of the pieces of information that applicants have to provide, but that can't be searched in isolation. It can only be searched in conjunction with a name and even then only a month and a year. That prevents parties from potentially scraping the register for information, and you can only search for the assignee of the creditor. You cannot search the assignee of the creditor, and that would prevent people from scraping the register perhaps to build up customer lists of lending institutions. I think that where most of the mitigations lie, it will be in the regulations that will follow the bill, which will set out most of the framework of how the registers operate. They provide the provision to allow rules to make certain parts of the document that applicants upload, not necessarily to be submitted. For example, applicants could perhaps redact parts of documents that they upload, and that would be fine. That wouldn't affect the effectiveness of registration. The rules can provide that certain info contained in the register doesn't necessarily need to be disclosed in a search or an extract, so date of birth is perhaps a good example for that. Date of birth will be captured for ID purposes and to enhance the searchability, but when someone searches the register what will be returned, date of birth won't be there. That is something that we will certainly consult with parties as we develop those regulations and what other pieces of mitigation we can put in place to satisfy everyone. One of the other concerns that was raised was about making sure that the data held on the registers is accurate and can be updated easily. Those concerns about registers containing disputed or out-of-date information could have a negative impact on individuals. Do you think that there is a need for improvement to how user-friendly corrections and dispute resolution processes can be, as exists for credit reference information? The bill that is currently drafted sets out a correction procedure, how people can apply to me to have the record corrected and stipulates who those people can be. I think it's important to emphasise that I don't have a judicial role. It can't be for me to determine if there is a dispute between two parties about the accuracy of the record I hold. It's not something that I will be able to take a view on. John, do you want to come in a little bit more on any other policy side? Each of the two registers has their own correction regime. The register of assignations is effectively a snapshot-in-time register. The only way in which accuracy can be created is if the information that is inputted by the applicant at the time is incorrect or if our IT system makes a mistake, then people can contact us. The statutory pledges register is slightly different. There is a system of correction applications, as I referred to in the bill. They relate to things such as restriction, assignation or discharge, which are the ones that are of the most interest. Those applications will be made very similarly to the way that the original registration application is made. They will be automated, pretty streamlined and quick. We will certainly be looking to make those correction processes as easy for people to facilitate so that things such as discharge, for example, can be done quickly and cheaply. I will ask how the security of information is not about the security of information in terms of keeping it from people, but how people would prove that they are the right person, the correct person to be altering the information that was held. I am just concerned that somebody could mess around and change somebody else's information. How would you ensure that that was handled correctly? I will bring Kat in. With our other registers, we have a verification regime for who is going in and requesting updates to the registers. Kat, do you want to come in on how we are addressing that aspect? We have a regime for our professional users, such as lenders and solicitors, for example, our authenticated users with us that have accounts, and we verify them. They have access to our online services and they can go in and make registrations, do amendments and that sort of thing. I think that the question that we have at the minute and what we are investigating is if individuals are included as part of the legislation is how we would verify them and how they would come in safely and authenticated in an authenticated way how they would make changes to the register. That is something that we are investigating at present, just to ensure that we do not get into the situation where anybody can access information and make changes. Is there anything that you want to add, John? It is worth noting that those correction applications that I made reference to, they can only be made by the secured creditor, they cannot be made by other parties. I am being addressed and I thank you for that. Just if I can come back to the point that you just made earlier, John, just to clarify my own mind around this, in regard to what powers you have, there were obviously some issues initially when the land registration was rolled out about arguments about the right piece of land, who owned what and where were the boundaries. In regard to this, what powers do you have if someone says, well actually I did not grant a security over that or there is fraudulent behaviour to investigate that? Is that something you have power to do or do you simply refer it back to another body? It is not something I have power to do. The test as defined in the bill of my ability to correct is manifestly inaccurate and I know what I would need to do to correct it. If there is any dubiety about that, for example, if there was an allegation of fraud, we would be referring people to the police as the appropriate authority to take that through. As we do with our other registers, if someone comes to us and says that a fraud happened, we do not have powers to investigate that. John, do you want to add anything on the policy side as defined? Just exactly that, that the keepers role in terms of this register is a bit different from the land register in that it is almost entirely administrative and that is reflected also in the liability provisions in the bill which are very clear that the keeper is entitled to rely on the information provided to her by applicants. It does not interrogate it in the way that we would interrogate land register information. If I may just add one of the other things and cats alluded to the professional users who will primarily be the people, they will tend to be people in regulated roles who have a duty of care to the people they are supporting, will have rigorous fraud regimes to check and things like that. Our anticipation is that the due diligence around all of that is absolutely done upstream. It does not mean that it cannot happen, but it is something that is not going to be for us to investigate. If someone comes to us and alleges a fraud, we can just signpost them to the right place to get that looked into. I have a final question from myself. It follows on from an early line of questioning, I think it was from Jeremy. If at some point in the future it felt as if the registers themselves were not being updated, that people were not being removed from the registers, what would your process be to contact the land register? To ask them for clarification on particular instances or examples of individuals who are potentially still on the register, that really should not be. John, do you want to come in on what currently there is provision for us to do and if a regime came in from an amendment, what that would be or the minister decided to make powers under this? There is no current power that would allow us to contact landers. What the bill does do is allow, in addition to correction applications by the secured creditor themselves, it also allows the provider to ask the secured creditor to correct that application to discharge it in a likelihood. If the creditor does not comply with that, the provider can come straight to the keeper and ask us to remove it. There is a process set out in the bill that involves the notification of the creditor that we can do. If the bill was to be changed or a subsequent amendment to the act that was once in place meant that these correction applications were statutory and had a statutory basis, then that is something that we could accommodate. Although it is worth noting just now that, while the registration of a statutory pledge is required for it to have effect, the other changes such as discharge or resignation do not require registration to have effect, so that would also require quite a significant change to the bill in terms of effect of registration. Do you have any other questions? With that, I thank Jennifer Henderson, John Hodge and Cat Hague for their help this morning. As with the first panel, the committee may follow up with any additional questions that stemming from today's session. I thank you very much and I will now suspend the meeting briefly to tell you the panel to leave. Under agenda item number three, we are considering two instruments subject to the affirmative procedure. No points have been raised on either the draft payment parking prohibition exemption orders procedure Scotland regulations 2022 SSI 2022 draft or the draft international organisations, communities and privileges Scotland amendment order 2022. Is the committee content with these instruments? Under agenda item number four, we are considering two instruments subject to the negative procedure. No points have been raised on SSIs 2022, 288 and 294. Is the committee content with these instruments? Under agenda item number five, we are considering two instruments not subject to any parliamentary procedure. No points have been raised on SSIs 2022, 289 and 295. Is the committee content with these instruments? Under agenda item number six, we are considering a document laid before the Parliament for approval. No points have been raised on the environmental standards at Scotland strategic plan ESS 2020-03. Is the committee content with this document? Yes. Thank you. Just before we do, we have into the private session. I would like to have a moment to say on the record the committee's thanks to Andy Proudfoot. Andy will be leaving the Scottish Parliament at the end of this week having supported the work of the delegator powers and law reform committee over the past four years. Andy is enthusiastic and a dedicated approach to his work has won him respect and appreciation of all those he has worked with over his time in the Scottish Parliament. Andy, on behalf of the members of the delegator powers and law reform committee in this session and previous sessions, I would like to thank you for your excellent hard work and we wish you all the very best for the future. With that, I will bring the public part of the meeting to a close and we will continue in private.