The Financial Secretary to the Treasury (Greg Clark)
I would like, Mr Speaker, to update the House on the investigations of the Financial Services Authority, the US Department of Justice and the US Commodity Futures Trading Commission into the attempted manipulation of the setting of the London interbank offered rate, or LIBOR, interest rates. As Members will be aware, LIBOR is a major benchmark reference rate that is fundamental to the workings of the UK and international financial markets. Barclays and UBS have previously been fined by the authorities for attempted rate manipulation. Other financial institutions are under investigation, but today’s reports relate specifically to RBS.
Findings published today by the FSA show that certain individuals in RBS sought to manipulate LIBOR submissions. This is an extremely serious matter, motivated by greed. The FSA found that RBS breached two of its principles for businesses. First, between October 2006 and November 2010 it repeatedly breached the proper standards of market conduct required by the FSA’s principle 5. It made LIBOR submissions that took into account its own derivatives trading positions or took into account the profit and loss of its money market trading books; and it sought to manipulate the submissions of others by colluding with panel banks and broker firms. The breaches of principle 5 relate to LIBOR rates in three currencies: Japanese yen, Swiss francs and US dollars.
Secondly, from 2006 to as recently as March 2012, RBS failed to have the necessary risk management systems and controls required by the FSA’s principle 3. There was a failure to identify and manage the risks of inappropriate submission, an absence of any submissions-related systems and controls until March 2011, and inadequate transaction monitoring systems throughout. Furthermore, in response to a specific request by the FSA as a result of its inquiries into LIBOR, RBS attested to the FSA in March 2011 that its LIBOR-related systems and controls were adequate. It transpires that RBS’s systems and controls were inadequate, and so RBS’s statement to the FSA was incorrect.
These findings are grave. At least 219 requests for inappropriate submissions were documented, and at least 21 individuals, including at least one manager, were involved in the inappropriate conduct. In the light of these findings, the FSA has rightly imposed a fine of £125 million on RBS, reduced to £87.5 million for early payment. This figure is less than the £160 million fine imposed on UBS but greater than the £59.5 million fine imposed on Barclays, in proportion to the scale of the offences committed.
Also today, the US Commodity Futures Trading Commission has announced that it has found RBS guilty of similar offences in the US and has imposed a fine of $325 million. The US Department of Justice has announced a fine of a further $150 million and, in addition, has reached a deferred prosecution agreement with RBS plc; and RBS has accepted one criminal charge for wire fraud relating to its Japanese securities subsidiary.
The Government are clear that any organisation or individuals found guilty of this sort of wrongdoing must take full responsibility and should be punished, if appropriate, by both the civil and the criminal law. The FSA’s report identifies that at least 21 individuals were actively involved in the misconduct, including derivatives traders, RBS’s primary LIBOR submitters and one manager. Of these, eight have resigned, six have been dismissed, and all the remainder are facing disciplinary proceedings.
In the light of the findings at Barclays last year, the Serious Fraud Office has launched a criminal investigation into attempted LIBOR manipulation across a number of financial institutions, to which it is rightly committing a large amount of resource, including a 40-strong team. As the Chancellor has previously said, where laws have been broken in this country, the Government and the relevant authorities will continue to make sure that the authorities have all the resources they need to make sure that those who are guilty are brought to justice.
But this action against the perpetrators is clearly not sufficient. It is right that in the face of misconduct of this scale, responsibility is taken at senior levels. That is why, although the report clears senior management of any involvement in, or knowledge of, the misconduct, it is right that John Hourican, the leader of the investment bank since 2008, will leave RBS after handing over his responsibilities. He will receive his minimal contractual entitlement of 12 months’ notice and other contractual entitlements. He will forfeit 100% of his unvested bonus and his long-term incentive plan awards that are subject to clawback, totalling some £5 million, as well as, of course, forfeiting any bonus that he would have received in 2012.
This still leaves the question of the very substantial fines that RBS will have to pay. While it is right that RBS faces the full force of regulatory action in the light of its misconduct, the Government believe that it would clearly be wrong for the taxpayer to foot the bill. In the case of the FSA fines, the Government have changed the system so that all revenue from fines will be used to the benefit of taxpayers. In the Financial Services Act 2012, which received Royal Assent just before Christmas, we have made provision for all such fines, net of enforcement costs, to go to the Exchequer. So when RBS pays the FSA £87.5 million in fines, everything after enforcement costs will flow directly back to the taxpayer. Thanks to this reform, the Government have been able to announce previously that £35 million of fines imposed during 2012 will be used to support Britain’s armed forces community, with an additional £5 million going to the Imperial War Museum.
Money raised by British authorities from banks for their misdemeanours and recklessness in financial markets will be used as a force for good and go to people and causes that demonstrate the best of British values. This will include military good causes, which provide lasting support to servicemen and women, who provide invaluable service to this country, as well as their families and veterans. We will announce specific details of further disbursements in due course.
In the case of the US authorities’ fines, I am insistent that the taxpayer should not foot the bill. That is why these fines must be met in full from past, present and future reductions in the bonuses and pay of RBS. The Government support the action that Stephen Hester and the RBS board have rightly taken in response to the very serious issues that have been identified. The House should know that this has been a complex, meticulous and co-ordinated investigation between the international regulatory authorities. I wish to thank all three parties for their diligence and co-operation in identifying and punishing those responsible.
The Government have made it clear that the Royal Bank of Scotland must take every step necessary to ensure that this scandal never happens again. The structure and culture that allowed these events to take place must be changed fundamentally. This also requires ensuring that RBS is focused on the right priorities. That is why the Government support RBS’s statement that it will continue to shrink its investment banking operations and focus on serving its core business customers. This smaller, more efficient markets business will be good for RBS customers, particularly UK businesses.
Today’s findings are a further demonstration of the importance of the tough and swift action that this Government took in response to the first findings of attempted LIBOR manipulation concerning Barclays in June 2012. LIBOR manipulation happened in many countries, but no country has responded as quickly or as decisively as Britain has now done. The Chancellor commissioned Martin Wheatley, the chief executive-designate of the Financial Conduct Authority, to review LIBOR and the corresponding criminal sanctions regime. His review was published 13 weeks later and the Government accepted his recommendations in full last October.
The Government and the House proceeded immediately to implement those reforms through the Financial Services Act, which received Royal Assent in December. As colleagues will know, secondary legislation has been published in draft and will be debated in this House in the coming weeks, introducing the new regulatory and criminal sanctions regime underlying LIBOR and other benchmarks.
LIBOR activities will be within the scope of statutory regulation, including the submission and administration of LIBOR. Where people have broken the law, the Government will ensure that the authorities have all the resources they need to make sure that they are pursued and punished. The British Bankers Association is being replaced as the operational LIBOR administrator. Baroness Hogg is chairing an expert panel that will identify an appropriate successor.
The Government strongly support the various international initiatives taking place on wider benchmark reform. To restore trust, it is essential that any reform proposals are co-ordinated at a global level to ensure consistency in how benchmarks are governed and regulated. More broadly, this case reinforces the need for the changes already put in train by the Government to rebuild confidence in our banking system overall, and to ensure that such events cannot be repeated.
The previous regulatory regime failed. No institution was clearly enough focused on financial stability or conduct issues. The Financial Services Act establishes a new system of focused financial service regulation, including the Financial Policy Committee to oversee macro-prudential regulation, the Prudential Regulatory Authority to ensure the stability of individual banks, and the Financial Conduct Authority, a new, independent and specialist conduct regulator capable of focusing on exactly the types of issues that we will be discussing today.
There are also broader issues to be tackled in relation to the culture and professional standards of the banking system. The commission on banking standards, comprised of expert representatives from this House and the House of Lords, has been established to do precisely that—to identify ways not only of raising professional standards, but of protecting the consumer from the inherently more risky world of investment banking. I thank members of the commission for the important work that they are carrying out.
In conclusion, this is another day of shame for Britain’s banks and it is vital that we recognise it as such, not because Britain stands alone in this and similar scandals—which, as we know, is very far from being the case—but because Britain must stand out in the way that we put things right.
Let there be no excuses. Instead, let us have enduring, fundamental reform—and yes, let us have justice, too. Any organisation or individuals found guilty of a crime must take full responsibility and should be punished by the law, while the ordinary taxpayer must not and will not pay the price of their misdeeds. If, in the process, we hold our financial sector to higher standards than elsewhere in the world, that is nothing to shrink away from. Indeed, it is something that we must not only welcome, but actively pursue. That is why we have put in place a vastly stronger system of regulation so that misconduct can be prevented, not just punished. It is also why we look forward to the further recommendations of the parliamentary commission.
“My word is my bond” is the motto on which the City was built, and we must rebuild that bastion of confidence here in Britain—the best place in the world to do business, but the worst place in which to abuse the trust on which free enterprise depends.
Chris Leslie (Nottingham East) (Lab/Co-op)
This is a very serious setback for RBS on its road to recovery, and another stain on the reputation of UK banking. It is not just a case of excessive risk-taking by investment bankers; it is about the corrupt manipulation, until quite recently, of what should have been a trustworthy and independent index determining the inter-bank interest rate.
How much more evidence does the Chancellor need before he can agree to truly radical reforms for our banking system? Yet again, we have seen an appalling saga of interest rate fixing—not confined to one bank, but across the whole industry—but the Government still refuse to take a back-stop power for full separation in case ring-fencing does not work. Just what will it take for the penny to drop? Why will the Financial Secretary not accept fully what we have been saying since last year, namely that the Government must implement both the letter and the spirit of the Vickers recommendations and that we must see fundamental culture change? If that does not happen, the banks will need to be fully split up.
Those doing business with the banks will be astonished by these revelations. Will the Financial Secretary explain in simple terms how ordinary companies and customers with mortgages or savings linked to LIBOR will ever find out if they have been fleeced as a result of this fraudulent activity? If those customers have lost out because of LIBOR rate rigging, how and when will they get their money back?
Despite the Financial Secretary’s claim that the Government reacted swiftly, does he regret not getting ahead of the scandal as it emerged last year? On LIBOR, I asked his predecessor, the hon. Member for Fareham (Mr Hoban), during a Financial Services Bill Committee sitting last March whether the Government had a view about whether there was manipulation and whether changes needed to be made to the regulatory arrangements. He stood up and answered with the single word: no. The Treasury has, of course, come to regret that stance and, several months later, this tremendous scandal began to leak out.
Will the Financial Secretary update the House on the process for extricating the LIBOR setting process from the British Bankers Association and when an independent and more transparent arrangement will be secured? Was not the 2012 Act a missed opportunity, not just because it failed to widen the regulatory perimeter to cover LIBOR, but because it left doubt over whether regulators can prevent benchmark rigging in other trades, such as the gas and electricity markets, commodities, metals and oil? Rather than wait for Europe to legislate, the UK Government need to wake up and take preventive steps now. We will table amendments to the Financial Services (Banking Reform) Bill in the coming weeks.
Does the Financial Secretary agree that we also need new rules to protect whistleblowers who highlight failures inside the banks, and that we must ensure that offences created to punish misleading statements also properly cover the foreign operations of our UK banks? The Financial Secretary has said that the large fines for RBS will be clawed back in part from the bank’s bonus pots, but is it not now clear that fundamental changes are needed to the pay and bonus culture across the banking sector, including a repeat of the banker bonus tax to pay for opportunities for young people across the country? The Business Secretary said this morning that he has a plan for the RBS shares owned by the taxpayer. Does the Financial Secretary agree or disagree with that? What exactly is the Government’s policy on the future plans for the RBS shareholding?
Taxpayers and bank customers are growing sick and tired of being let down by the banks day after day. Does this not all boil down to a question of trust—a question not only of whether British customers can trust their banks, but of whether investors across the world continue to trust their money with the City of London more than with other financial centres? Britain’s financial services reputation is on the line. Our economy needs a healthy and sustainable banking sector, so we must rapidly clean up the system and put UK financial services on the path towards respectability, integrity and professionalism.
Greg Clark
It is, of course, right that we do that. I have been very clear that we are taking the steps that we are taking to restore the international reputation of the City and to make it pre-eminent in the world as a place in which people have confidence.
I would have thought that the hon. Gentleman would have taken this opportunity to reflect on the contribution that the previous Government made to the decline in the reputation of the City. It is not as if the chaotic regulatory regime was not foreseen. In November 1997, during the passage of the legislation that set up the flawed Financial Services Authority, my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) said:
“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all.”
He went on to say that the Government of the day
“may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 732.]
That was the warning that the Conservative party gave the Government at that time, but it was ignored comprehensively for their 13 years in office.
We have moved quickly, as most reasonable people would concede. We already have a Financial Services Act on the statute book and we have set up an eminent commission chaired by Sir John Vickers to recommend far-reaching changes to the financial services system. The previous Government’s contribution to the eminence of the City was to knight Fred Goodwin, for heaven’s sake. The Opposition spokesman brags about the reforms to the regulatory system that he recommended in a Public Bill Committee, but it was the shadow Chancellor, when he had my job, who said that
“nothing should be done to put at risk a light touch, risk-based regulatory regime.”
We are making the reforms that it falls to us to make.
I will answer some of the specific points that the hon. Gentleman made. We will have discussions about the Financial Services (Banking Reform) Bill. Most reasonable people would conclude that the reforms that we are making, with the advice of the Vickers commission and the Parliamentary Commission on Banking Standards, lead the world in this area. The Liikanen report, which is being recommended at a European level, explicitly refers to the reforms that we are contemplating. It is right that we should be ahead on this.
The hon. Gentleman is right that the Financial Services Authority must investigate whether any individuals or firms lost out as a result of the attempted manipulation. I call it attempted manipulation because we are talking about the rates that were submitted and it is not necessarily the case that the LIBOR reference rate changed in response. However, it is right that the FSA should make that assessment.
The process that Martin Wheatley recommended to replace the BBA is under way. It will become a regulated activity as soon as the statutory instruments are passed. Baroness Hogg and her committee are setting up a process to invite tenders, which will not include the BBA, to administer that process. As Martin Wheatley said, it is necessary that that is done in a way that does not undermine confidence in the rate-setting process during the transition, because it is fundamental to many contracts, as the hon. Gentleman implied, including people’s mortgages.
The hon. Gentleman mentioned other benchmarks. The powers that we took in the amendments that we made to the Financial Services Act 2012 before Christmas allow us quickly to specify any other benchmarks that might be subject to such abuse. Our response has been co-ordinated with the international authorities and nobody regards the powers that we have as inadequate to the task of dealing with other abuses.
On whistleblowers, the hon. Gentleman is right that it is important that people within banks and financial services should have the confidence to report abuse. A very small number of people are responsible for something that is besmirching the reputation of many millions of people up and down the country who work hard, day and night, for banks. Those people have had reason, over the years, to be proud of their career. It is important, not least for those people, that the institutions for which they work recover their reputations.
On the shareholding in RBS, it is of course the Government’s intention to return it, at the appropriate time, to private ownership. It is not right that we should own such a significant stake of a high street bank. It was necessary for us to do so because of the crisis that the hon. Gentleman and his colleagues know all about. As soon as it can be returned to independence, the better.
Mr Andrew Tyrie (Chichester) (Con)
I am sure that the whole House welcomes the fact that the US fines will be clawed back from bonuses. LIBOR, serious though it is, is just the tip of a large iceberg of banking malpractice that is now being exposed to view. The Minister ended his statement by pointing out that we should not shrink from imposing higher standards than other countries. Does he agree that if we impose high-quality regulation, it will not only be morally right, but may attract good business to the UK and be in the UK’s economic interests overall?
Greg Clark
I do agree with that. The work that my hon. Friend’s commission is continuing to do on the culture of banking is important and will inform the further reforms that we need to make. I do not think that we should be shy of setting high standards in this country; in fact, it is necessary to do so. At a time when trust is in flight across the world, there is an opportunity for the City of London to establish itself as a haven of probity and safety in a volatile world. High standards, far from being a threat or a danger to our financial institutions, are necessary for their continued prosperity, which I and the whole House want to see flourish.
Mr George Mudie (Leeds East) (Lab)
The Minister has referred to a need for cultural change. One culture that it is necessary to change is the banks’ unwillingness to lend to small businesses. The Secretary of State for Business, Innovation and Skills has spoken today about RBS and the lack of lending to small businesses, even with the recent initiatives. Have the Government given any thought to using the 350 RBS branches that they have to dispose of for the business bank, thereby giving it a regional and local presence so that small businesses can go to it, discuss loans and hopefully agree them?
Greg Clark
I very much agree with the hon. Gentleman that we should have more local, business-focused banks in this country. I hope that we can recover the personal knowledge, service and understanding of the needs of business that branches used to have in abundance. RBS is not nationalised, so we cannot direct it in the way that he suggests. However, the reforms that we are making, particularly in the Financial Services (Banking Reform) Bill, emphasise the importance of increasing competition and of having new entrants. As he knows, some of the divestments that have been required recently have brought entrants into the market that have concentrated on lending to small and medium-sized businesses. That is a force for good, but we need—and I want to see—much more of it.
Mark Field (Cities of London and Westminster) (Con)
May I, too, welcome the Minister’s statement? I also associate myself with the words of the Treasury Committee Chairman, my hon. Friend the Member for Chichester (Mr Tyrie).
The City of London should have nothing to fear from arbitrage, although it is sometimes said that it should. If we have a regulatory system that is robust and fair, it will pass the test of time and, in the medium to long term, will become a great attraction of the City of London.
Whether we like it or not, we need our banks more than ever, whether we are small businesses or individuals. There is a danger that with 20:20 hindsight, we are finding ever more scandals and examples of mis-selling, whether with LIBOR, interest rate swaps or payment protection insurance. Will the Minister make it clear to the banks that we need to draw a line under these scandals? There is a danger that we are falling further and further down a slope and that it will be extremely difficult for banks to regain the trust of the public at large. Without that trust, the broader economy will suffer
Greg Clark
My hon. Friend speaks with great expertise. He has worked in and represented with distinction the City of London over the years, and more than anyone he recognises the importance of it re-establishing its prestige. Part of doing that and of sending a signal to the current generation working in financial services is to say clearly that the misdeeds of the past need to be put right. Where people or small businesses up and down the country have suffered detriment, we should not turn a blind eye. We should be rigorous in holding people to account, and acknowledging the harm done to businesses that have suffered from past mis-selling, and when we do that we should look—as in this case—to recover the costs of such mis-selling from the perpetrators. The Chancellor has set out that principle and I expect the banks to follow it in the months and years ahead.
Stewart Hosie (Dundee East) (SNP)
I welcome the statement and particularly the fact that the fines will be paid by the banks and not the taxpayer. I also welcome the fact that the British Bankers Association will no longer have anything to do with LIBOR. However, this is not just about who calculates the LIBOR rate, but how it is calculated. Will the Minister update the House and say how we will have transparency and the confidence to know that rates submitted by the banks are those at which they can borrow money, rather than the acts of fiction, fixes and fiddles that we saw over many years with many banks?
Greg Clark
The hon. Gentleman makes an excellent point. One recommendation of the Wheatley review was that the setting of LIBOR benchmarks should include objectivity. That will require a reduction in the number of benchmarks because some do not have the volume of transactions to establish that, but the new regulated conduct of LIBOR setting will include a requirement to route the reporting of rates through transactions that are visible to the Financial Services Authority. The opportunity to parlay the commercial interest of particular banks into what is supposed to be an objective rate will therefore no longer be there.
Stephen Williams (Bristol West) (LD)
My right hon. Friend has delivered his statement in his usual calm and moderate way, but his constituents in Tonbridge and mine in Bristol West will be absolutely disgusted and furious when they discover that a lot of these abuses took place after the £45.5 billion taxpayer-funded bail-out of the Royal Bank of Scotland that saved those jobs. The Parliamentary Commission on Banking Standards is clearly still working, but surely one outcome of such abuses should be that any individual involved is struck off—whatever criminal and civil sanctions could be taken against them—and never allowed to work anywhere else in British financial services. If they were a doctor, lawyer or accountant, that is precisely what should happen. That is the real culture change that we need in banking.
Greg Clark
My hon. Friend is right. The constituents of my right hon. Friend the Member for Tonbridge and Malling (Sir John Stanley) might be concerned if I sought to represent them, but my constituents in Tunbridge Wells do, I think, share the fury that has been described. For a bank that has caused the taxpayer to bail it out to such an extent to then engage in practices that could—had we not taken action to require clawback—have resulted in further cost to the taxpayer, is outrageous. I agree with my hon. Friend the Member for Bristol West (Stephen Williams) that the individuals implicated in such practices should leave the financial services and find a better living, rather than working in an industry in which trust and confidence is required.
Mr Andrew Love (Edmonton) (Lab/Co-op)
I hear what the Minister says about the highest standards of regulation for the City of London, but how does he explain the fact that once again, American regulators have imposed fines that are three times higher than those from the FSA, thereby appearing much more robust in their investigation of LIBOR and other issues? Now that we are having a “twin peaks” model, what discussions is the Minister having with the regulator to ensure that it imposes appropriate fines and undertakes proper investigations to ensure that we root out the difficulties of the past?
Greg Clark
The hon. Gentleman makes a good point. He will know that there is a long-established culture of very high fines in the US. Fines in this country have increased markedly in recent years, although none of the institutions subject to FSA fines in recent months would regard them as anything other than exacting. It is right for us to follow the practice of other jurisdictions, including the US, in having a more explicit criminal code. Our amendments to the Financial Services Act 2012 mean that criminal sanctions explicitly for the manipulation of benchmarks are available that were not there in the past. It is right to take what the hon. Gentleman says seriously and strengthen our enforcement powers, and we are doing that through the legislation that has been passed.
John Howell (Henley) (Con)
I thank my right hon. Friend for the tough and swift action that he has taken on this matter, but I have a more general question about the culture change that will be required. The extent of the culture change seems to be enormous. Why does he have confidence that it is achievable?
Greg Clark
There are a number of reasons why I think it is achievable. The first is the contribution that regulation can make. As Members have said, it is important to have a more exacting set of regulatory standards that are intolerant of the kinds of abuses that have taken place. Secondly, it is in the commercial and strategic interests of banks to restore the reputation that they used to have for trust. Financial services depend on trust. If people do not trust the banks, they will not do business with them. I think the penny has dropped across the City, and most of the new generation of chief executives understand the connection between their future profitability and performance, and the need to provide decent services to their customers.
The third reason is a matter being investigated by the Treasury Committee and concerns a failure or subversion of the culture of banking. Banking was always associated with high standards of probity; it was a vocation for people who were thought to be of a rather conservative disposition and inclined not to take excessive risks. That was subverted by exposure to some of the practices of recent years, and because that was inadequately regulated it distorted what should be the right culture in the industry. We need to make changes to all three of those areas, and that is precisely what we have done and what we have embarked on for the rest of the Parliament.
John McDonnell (Hayes and Harlington) (Lab)
Following the point made by the hon. Member for Cities of London and Westminster (Mark Field), let me urge the Minister that there can be no drawing a line in the sand and no amnesty given until corruption is rooted out. My constituents now look on the City of London as a fetid swamp of corruption. They see only people forgoing bonuses but no one being imprisoned for the swindles that have taken place. There can be no amnesties at all. Will there be any investigation into allegations—I have raised this point previously—of attempts to manipulate the auctions associated with the quantitative easing exercise undertaken by the previous and current Governments?
Greg Clark
I am not aware of those allegations but I will look into them. Any criminal activity in any part of the financial services industry ought to be prosecuted and pursued with the same degree of vigour as in any other walk of life. The hon. Gentleman overstates the case in his reflection of the City. Hundreds of thousands of people work in the City and do a decent job working hard for their clients and businesses up and down the country. They are as outraged as any of us in this House about the damage done to the City’s reputation. The future for us and for our interests is to see that reputation restored and root out the corrupt individuals—corrupt is the word in this case—who have done disproportionate damage to the reputation of a set of institutions that should be one of the prides of this country.
Julian Smith (Skipton and Ripon) (Con)
In the light of the report, I urge the Minister, and my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, to look carefully at the Securities and Exchange Commission’s highly successful whistleblower incentive scheme, which gives whistleblowers a cut of fines, and at how we begin to replicate that model.
Greg Clark
The discount in fines given for co-operation is one reason for organisations to co-operate, but I will look at my hon. Friend’s point on individuals.
Sammy Wilson (East Antrim) (DUP)
The report indicates that, so arrogant were some bank workers, they treated themselves as masters of the universe to whom normal rules of fair play did not apply, which has impacted on banks and their reputations. The banks rather than the taxpayers will pay the fines, as they are required to do, but how will the Minister ensure they do not simply pass on additional charges to customers to recoup the costs?
Greg Clark
It is essential that the banks do not do that. They need to be transparent as to the source of the payment to meet the fines—that is essential. Far from those people being masters of the universe, they are culpable of doing a great disservice in falling way short of the standards of behaviour by which most decent people up and down the country would expect to live their lives.
Neil Carmichael (Stroud) (Con)
I welcome the statement and its robust and vigorous tone, which sets the scene for the appropriate direction of travel, but does the Minister agree that we need an influx of professionalism to the banking sector? That would be enhanced and made more likely by strong accountability mechanisms and more transparency. That is what I hear from small and medium-sized businesses who struggle to contact banks at all.
Greg Clark
I completely agree with my hon. Friend. The commission led by my hon. Friend the Member for Chichester (Mr Tyrie) is looking at how such professionalism, which can be found in financial services, can be bolstered and further recognised.
Mr William Bain (Glasgow North East) (Lab)
The public, who after all own more than four fifths of that bank, will be appalled at the duration and extent of the greed and corruption that has been exposed by the FSA today. Does the Financial Secretary agree that that strengthens the argument made by the Financial Services Consumer Panel that the banks ought to be subject to a fiduciary duty to their customers, as lawyers and company directors are, so that savers and investors have maximum protection?
Greg Clark
The hon. Gentleman makes an important point that will be considered by the commission, which is looking into the culture. It is important that banks recognise that they exist to serve their customers—that is their purpose and the reason why they operate. My recent experience of speaking to some bank boards leads me to believe that they recognise the commercial imperative for that, but he makes a suggestion that I am sure our colleagues will consider.
Jim Shannon (Strangford) (DUP)
I thank the Minister firmly for his statement. In particular, I thank him for the £35 million of fines imposed on the banks that will go directly to the armed forces community; £5 million will go to the Imperial War Museum. Will he confirm the criteria by which charity groups such as the Royal British Legion, the Army Benevolent Fund, SSAFA and Help the Heroes can qualify for financial assistance through the fines on the banks?
Greg Clark
As I said in my statement, we will make further announcements on the disbursement of the funds, but they have been earmarked and reserved for the military community.